S&W Seed Co (SANW) 2018 Q1 法說會逐字稿

Good afternoon and welcome to the S&W Seed Company Reports First Quarter Fiscal Year 2018 Financial Results conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please also note that today's event is being recorded.

At this time I would like to turn the conference over to Mr. Robert Blum of Lytham Partners. Sir, please go ahead, sir.

Thank you Jamie and thank you all for joining us to discuss the financial results for S&W Seed Company for the first quarter of Fiscal Year 2018, ended June 30, 2017. With us on the call representing the Company today are Mark Wong, President and Chief Executive Officer and Matthew Szot, Chief Financial Officer.

At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the 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, 2017 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?

Thank you Robert and good afternoon to all of you on the call today. As I mentioned during my inaugural conference call eight weeks ago, I believe S&W remains one of the unique middle market agricultural companies in the world today. This is the reason I became CEO. I believe we have a tremendous opportunity to leverage a very strong asset base to drive incremental value for each dollar of seed we sell by evolving our focus to include trade premiums of our existing crop portfolio as well as the creation of a more customer-centric sales organization.

This evolution will not occur overnight. But at the end of the day I am confident that it will enable us to significantly expand shareholder value. Looking at the first quarter, we saw a continuation of the trends that highlighted Fiscal 2017; improved gross profit margins as we reduce our production costs offset by weakness in Saudi Arabia caused by the recent change in water regulations. Overall, revenues were $10.7 million compared to $12.3 million in the quarter a year ago but importantly gross margins were 21.8% compared to just 15.9% last year. The 590 basis point improvement in gross margins is especially significant given our product mix. As we move towards the remainder of the year and product mix shifts to our higher margin varieties, we expect his to become an even more pronounced trend. I know Matt will talk more about this in his details shortly. As I highlighted during our last conference call, I think there is a large opportunity for us to build an integrated seed biotech platform that can bring significant value to the marketplace. There are certain classes of genes that we are evaluating with a high degree of interest including digestibility, insect resistance, disease resistance and herbicide resistance.

Trade development will be a key driver for S&W going forward in our alfalfa, sorghum and sunflower programs as well as future crops we may look to enter or acquire. Along these lines, we made a significant announcement last month. Calyxt and S&W jointly announced that the first of its two alfalfa product candidates has been designated as a non-regulated article lender "IM regulated" processed by the biotechnology regulatory services of the Animal and Health Inspection Service, or AHIS, an agency of the USDA.

The improved quality alfalfa product is the first ever alfalfa product to receive the non-regulated distinction from the USDA. The collaboration between Calyxt and S&W Seed Company is focused on providing enhanced traits in alfalfa seed varieties that can drive improved productivity while decreasing input costs to meet the growing global demand for higher quality alfalfa products.

S&W is proud to be on the leading edge of new breeding technologies with this collaboration with Calyxt and we are excited to commercialize this leading edge technology with this being just the first in a pipeline of products for alfalfa seed marketed with Calytx. In addition to our work with Calyxt, we are making advancements in our technology trait [development] with Generic Genetics led by renowned biotech trait developer David Stalker. We are working to develop novel alfalfa seed varieties containing select biotechnology traits. As a member of -- as a number of unique technologies come off patent in the coming years, we are looking to leverage Generic Genetics knowledge of patent -- of the patent landscape and scientific expertise to create variety specifics to S&W utilizing current transgenic traits coupled with other trait technologies proprietary to Generic Genetics.

Currently we are working with off patent constructs of traits in preparation of transferring them to S&W. Based on this unique approach, we believe there's an opportunity to achieve non-regulated status on these products. This would be another significant development within our program. Again, the unique goal is to develop traits that we can attain higher value per pound of seeds sold and developments -- and we have ongoing with Calyxt and Generic Genetics are the types of agreements that can help us get there.

As some of you are aware, we have recently expanded our R&D facility in Napa, Idaho. This facility will primarily have development of our alfalfa and stevia programs as well as parent seed increases for our sorghum and sunflower programs.

On the stevia front, we are confident in the progress being made in our R&D collaborations with the large unnamed consumer products company. Our goal is to develop a mechanically harvestable stevia plant for U.S. production with enhanced flavor profiles that would be specific to this customer. Our initial development agreement is scheduled to conclude with this customer in the coming months and we are currently in the process of creating an expanded three-year agreement with them. As I mentioned during the last call, I believe stevia is a growth opportunity for S&W. I will personally be overseeing commercialization initiatives and ensure that resources are allocated to drive the adoption and success of these products in the years to come. In our sorghum and sunflower programs, very good progress is also being made. From an R&D standpoint, the sunflower nursery in Hungary has been harvested. The seed has been shipped to Chile for (inaudible) activity, excellent progress has been made in development of hybrid sunflowers for the large Russian, Ukrainian and Eastern EU markets. In Chile seed is being produced for an entry into EU registration trials in 2018. In Australia the spring sorghum nursery has been planted with good emergence meanwhile in the U.S., grain and sorghum evaluation trials are nearing harvest. Sorghum and sunflower production side, production of parent seed and hybrid forage sorghum was finalized in Northern Australia with excellent results, 150 metric tons of hybrid seed was produced for S&W in Australia markets and we recently appointed a production manager for S&W genetics, hybrids and parent seed production in the southern hemisphere.

On the sales side and marketing front for sorghum and sunflower, in Australia the direct to market model has commenced with the sales of SV Genetics, hybrid sunflower and forage sorghums being made to dealers and distributors. In South Africa, 140 metric tons of SV Genetics, Sorghum Sudan [grass] has been harvested and most of that has been sold to Libyan and Pakistani markets. An additional two sorghum hybrids have been licensed to a client in Argentina and parent seed is being shipped to Argentina, Ukraine and South Africa for production by [licensees].

While sorghum and sunflower are a small portion of our current revenue base, I believe the opportunity is there for this to be a significant momentums in the years to come. While alfalfa markets in Saudi remain uncertain, we're seeing room for optimism in the U.S. We recently signed an agreement with a large national seed company to private label certain of our non-GMO dormant germplasm's that we acquired from the Pioneer DuPont acquisition. We are also working on additional regional seed companies that we would expand our footprint in the U.S. of this high end line of seed varieties. This ability to sell these dormant varieties which we acquired from Pioneer. In addition to customers here in the U.S. has also been a key selling point of the acquisition and we are making good progress on that front.

We are also in the final year of registration for certain dormant and semi-dormant varieties in Europe. This process has taken quite some time but we are finally in the final stages of getting two dormant varieties ready for sale in Europe in 2019 and three semi-dormant varieties in 2020.

This progress is helping expand the trials for alfalfa products to offset the weaknesses we've seen in Saudi. Before I turn this over -- the discussion over to Matt for review of the final results, let me recap our strategy going forward. First, our focus going forward will be to drive trait improvement within all of our current crops including alfalfa, sorghum and sunflower and stevia.

This is where my background lies and where I believe additional value can be generated. Based on industry history, more value per pound of seed is generated from technology then from the seed itself. We can no longer ignore the technology side and I intend to build S&W into an integrated seed biotechnology platform in the coming years. Second, we're developing strategies to become a more customer-centric organization based in conjunction with our key distributors to highlight and communicate the attributes of our alfalfa, sorghum, sunflower and stevia varieties to our customers.

Third, sorghum and sunflower will become increasingly larger components of our business going forward. We will look to establish market share through organic and possibly acquisition growth while developing traits that will allow us to become significant players in these crops going forward. And lastly, I believe stevia is a growth opportunity for S&W and I will be personally overseeing commercialization initiatives and ensure that resources are allocated to drive the adoption and success of this sector of our business in the years to come.

With this said, let me turn it over to Matt Szot to review the quarterly results. Matt, please?

Thank you Mark and thank you to everyone on the call today. For the first quarter, revenue was $10.7 million compared to $12.2 million in the first quarter of the prior year. We saw a $3.9 million decrease in shipments to Saudi Arabia and that was partially offset by an $825,000 increase in domestic sales and a $670,000 increase in sales to Argentina. We had an uptick in revenue from DuPont Pioneer primarily related to an earlier harvest making seed available for shipment. This was the main driver to the increase in domestic sales for the quarter. For Fiscal 2018, we are reiterating our previously communicated guidance of approximately $75 million to $80 million in revenue. Gross margins in the first quarter were 21.8, an improvement of 590 basis points compared to gross margins of 15.9% in the first quarter of the prior year. This improvement was consistent with our expectations and our previously discussed initiatives to drive improvements in gross margins.

From a dollar perspective, despite the $1.5 million decline in revenue, our gross profits increased by nearly $400,000. As we look to the remainder of Fiscal 2018, we expect gross margins to continue to improve as we increase our sales concentrations of higher margin dormant varieties. Total operating expenses for the first quarter are $4.5 million, compared to $4 million in the first quarter of the prior year.

SG&A was up nearly $450,000 due to an increase in sales personnel and related costs while R&D expenses were essentially flat compared to the first quarter the prior year. Our depreciation and amortization number ticked up just a bit due to additional capital investments in both our U.S. and SV Genetics R&D programs.

Adjusted EBITDA for the first quarter was a $967,000 loss, a slight improvement from the $971,000 loss in the first quarter the prior year. Again, the higher gross profits helped to offset the revenue decline and drive this slight improvement in adjusted EBITDA. We currently expect adjusted EBITDA for Fiscal 2018 to range between $4.0 million and $5.5 million. Now I want to provide a quick update on our previously announced rights offering. We filed a registration statement related to the rights offering on October 4 and we received limited comments from the SEC.

In response to the SEC's comments, we filed an amended registration statement on November 3. We're expecting the SEC to confirm by November 17 whether they have any further comments at which point we'll be able to determine the commencement and expiration dates on the rights offering. Our goal is to close the rights offering during the week before the Christmas holiday. And as a reminder, this is a (inaudible) rights offering which will generate $12.2 million in proceeds for us.

Now from a banking perspective, as we discussed last quarter, we recently closed on a new two-year $35 million working capital facility with KeyBank. This new facility is providing us the working capital to support our increased production and we are also working on securing a 15-year term loan to refinance our promissory note due to Pioneer in December of 2017.

From a balance sheet perspective, I think it's important to point out that we saw significant increase in inventory and corresponding accounts payable since the end of June. The increase in inventory and (inaudible) payables is consistent with our expectations and reflects the timing of our recent North American harvest. As in the past, inventory levels spike at the completion of our harvest period. To recap our guidance, based on information currently available to management, the company expects revenue for Fiscal 2018 to be approximately $75 million to $80 million and adjusted EBITDA could range between $4 million and $5.5 million and for the second quarter, we expect revenue to be approximately $20 million.

I know we went through a lot of data here, so if you have any questions, please feel free to ask. I'll turn the call back over to Mark.

Thank you Matt, I'd just like to wrap up the call today and give you a few of what I think are the highlights of what S&W represents in this unique middle market agricultural industry. We are one of the largest alfalfa seed companies. We have nearly 20% share of the worldwide alfalfa seed markets, we address global demand for animal protein, we access -- we have access to the leading products through our acquisition of Pioneer which also gives us distribution that we did not have before and we have multiple technology collaborations for the next generation of products. We also expand -- we are also expanding into other crops and technologies. We have a strong pipeline of new sorghum and sunflower products being rolled out. We have patented stevia varieties being commercialized. We have a strong based of industry leading germplasm in these crops, proprietary varieties of alfalfa and of these additional crops like sorghum, sunflower and stevia. We have long-breeding programs of up to 20 years to give us unique germplasm for each of these crops. We have strong production and distribution base. We sell our products in more than 30 countries around the world. We have production areas in both the northern and southern hemispheres of the world and we are able to grow our sorghum and sunflower products in these areas to support our expansion.

We're addressing also some really big markets. I think we've said before, we believe the alfalfa market is about $400 million a year in sales. We think the sorghum markets almost equal to that at about $350 million in sales. Sunflower is about a billion, so it's about twice as big, more than twice as big as the alfalfa market and the stevia market currently is about $565 million while the sweetener is in the billions of dollars and so stevia, as a product is hoping, as a product category, is hoping to take some more of that large sweetener market.

And lastly, I think we're a great value. We trade at a discount to industry valuations, seed companies traditionally are valued at a multiple of revenue, large transactions in the seed industry have been at increasing premiums as evidenced recently by buyers sales of its seed assets to [BASF] and we're currently trading just above, a little bit above, book value which, in my view is a real opportunity for people to buy the company shares at a very reasonable price and I personally have bought some shares recently in the company as has been announced.

In addition, and lastly, and maybe most importantly, I think we have a great team in place to execute on the initiatives that we've described in the last couple of calls and ultimately we will create value through these initiatives for you, our shareholders. We thank you for your continued support and we'd now like to open up the call for your questions. Operator?

Ladies and gentlemen, at this time we will now begin the question and answer session. (Operator Instructions) Our first question today comes from Sarkis Sherbetchyan from B. Riley FBR, please go ahead with your question.

Hi, good afternoon and thanks for taking my question here.

So in the press release, you know, I see that you guys have kind of outlined the fact that you want to become a more efficient and successful production platform marketing and sales organization, right, so just kind of thinking about that statement and given the fact that you maintained your annual revenue guidance. How do we reconcile the existing operating expense base of this business compared to this revenue trajectory? In other words, you know, are you potentially looking at some cost rationalization and if not, you know, what degree of confidence do you have that you're going to grow revenues materially higher from this trajectory?

Yes Sarkis, I think at this stage we feel comfortable where our operating expense spend is. We are going to see a bit of -- probably a $400,000 increase year-over-year in our research and development line item but overall we're most focused on growing revenues and expanding gross margins and we think our operating expenses -- of course we're always looking for ways to drive efficiencies there and reduce cost but we don't see significant opportunities nor is that really in our plan over the next 12 months to be dramatically changing the operating expense line item.

Understood. If we kind of think about the maintenance of the annual guidance, can you just maybe remind us, you know, the confidence at this stage in the year or the cycle?

Well, certainly our -- one of our largest quarters for revenue is in Q4 so, you know, we don't have a complete order book to substantiate the full $75 million to $80 million but with that being said, based on our -- a detailed rollup by our projections from our sales guys and communications from our customers. At this time we believe $75 million to $80 million is a reasonable range of expectations for our revenue for this year. We'll also be driving -- we will be driving, we expect to be driving, gross margin improvements year-over-year and that should be translating into an EBITDA of around $4 million to $5.5 million. And, you know, if the Saudi market continues to soften, we'll probably be on the lower part of that range and if the Saudi market remains stable or starts to improve, we'll be at the high end of that range?

Got it, that's helpful. I appreciate the commentary around the progress in sorghum and sunflower, those programs you have. Can you maybe outline what your near-term, mid-term and long-term revenue and gross margin targets are for those programs?

Well you know the -- Sarkis, this is Mark. The development of new species like this starts off with a breeding program that can take up to eight years to generate (inaudible) varieties and that's why most seed companies enter new markets as we have done through an acquisition of a breeding program, or an existing company. I think in the last call we said that after that it's a two or three-year process to kind of ramp up breeder seed in the form of these are all hybrids in sorghum and sunflower that we are developing. We're not doing any OP's currently so you have a three-line system for hybrids, A, B lines and restores and so we're developing all of those, increasing all of those lines and then putting them in the field to produce the seed that we'll sell to our farmer customers.

So, we expect this year some number around $2 million, $2.5 million in sales and from my experience, you know, we could ramp that number up looking at historical sort of growth rates for companies that do a good job in crops like these which I am sure we will do. But, we still think we can hit this sort of $30 million number in five years that we've mentioned before. How we get to $30 million from $2 million to $2.5 million is, you know, going to be a little bumpy, it always is, but we think we have a good chance based on our germplasm and our distribution and production assets to still get to that number within a five-year period.

I hope that answers your question.

No, that's helpful. One more and I'll hop back in the queue. I know you've talked about creating a customer centric organization as a key piece of the go-forward strategy working with key distributors, etc. Can you maybe give us a flavor or sense of how those discussions are going at this stage and or maybe some specific plans that you have and have been communicating with your customers?

Sure, so like many seed companies have concentrated on the hand off, so the next company along the line that gets our product is usually a distributor of some kind or a dealer who then sells directly to a farmer or a dairy farmer or someone like that in the alfalfa business which is obviously our concentration and we're selling to dairy farmers around the world who then produce the alfalfa and either feed it to their cows or are selling to beef producers in general who grow the alfalfa and feed it to their cattle but there's also a big alfalfa trading market so we sell to a lot of farmers who grow alfalfa hay and put that on the water to different countries and that's what's -- hay prices are pretty good right now and that's what's happening in that we think some of the Middle Eastern demand that we're not seeing in Saudi, as an example, is translating to improved shipments of alfalfa forage from both East Coast and West Coast markets to Saudi Arabia. So we're trying to focus on -- especially with these new traits that we're looking at, evaluating and putting into our products. I'll just give you an example since you asked or one. So what's really the benefit to the dairy farmer, right? So maybe the dairy farmer is buying through a distributor or something and that relationship is absolutely important to us and the distributor understands the technical aspect of our products and why they're superior to our competitors products is important to us.

We have to prove to the dairy farmer that he gets more milk from our alfalfa, I mean, that's bottom line there and that's what I mean by a customer focused effort is we've got to work more with the final user, right? He's the one, or she's the one, that translates a bale of alfalfa or a bale of forage is in a silage pit to milk and we've got to do more to understand what that metric looks like, how to both produce seeds that gets the farmer more value but also to teach the farmer what kind of processes he needs or she needs to plant, harvest and then feed that alfalfa to his or her animals to get more value.

So, it's both a process of putting more and better generics in the plants, in the seeds, but it's also a teaching process of making sure that our customers are informed how to use our seeds to get more value at the farm -- at the animal level.

The dairy farm wants to know, how do you get more milk? How do you get more milk for every pound of S&W alfalfa that he buys, that he then grows and translates into silage or hay and that then he feeds to his dairy cows or beef cows. That's what we're trying to develop, that whole chain of information and value for ourselves and for our customers. They've got to know how to use our products. I hope that answers your question.

That's great. I'll hop back in the queue. Thank you.

Our next question comes from Gerry Sweeney from ROTH, please go ahead with your question.

Mark, this is probably a little bit more for you. So, I mean, in the prepared remarks, you went through a lot of different things, the Calyxt opportunity, the alfalfa trait, sorghum, sunflower, but obviously you've been in this business a long time, as you're looking at a wide variety of opportunities in front of you, as you look out -- this year is this year, but as you look out the next couple of years, what gets you most excited? What do you think, maybe on like a risk based analysis, what has the biggest opportunity to hit the market and could be the most successful?

Yeah, I'm going to talk about that in a little bit general terms because if I name the exact traits, probably our competitors who are listening to this call and that probably wouldn't be a good thing but --

Okay, that's fine.

So bear with me please, but I'll break it down into a couple of categories. I think traits really break down into two main categories; traits that help the farmer in some way, right? They either reduce his costs or they improve his yields but the bottom line for him is that he can make more money at the same original price of his commodity. But, the other set of traits, which are just as important, are traits for the end consumer. So if you had a more nutritious kind of milk with better make up of protein and fats and vitamins and things like that, that would be something that would be valuable. So we're trying to look at both of those two categories, the customer sort of focused traits and the farmer sort of focused traits.

The customer traits in the history of the industry have been a bit harder to develop. But we think they're really important and we think that they're from a sort of public acceptance standpoint, they're very, very important because the public has to see something in this technology development that really helps them. They've got to see a better product, they don't -- yes they care about the price of products and they care if the farmers are making money in sort of a opaque sort of way, but they really like to see something that helps them and we're focused on those kinds of opportunities as well as more traditional ones that either increase yield or reduce farmer costs.

So that would be my general answer to your question.

All right, on the gross margin side, is -- Matt, has this been the result of the optimization program sort of growing S&W out California Seed in Australia that we've always sort of talked about the last couple of years driving the margin?

Well, I would say probably -- in Q1 the margin improvement was more just pronounced by the fact that of the -- which was primarily a non-dormant quarter for us Gerry, the cost of that production, we did a better job of securing contract production at lower cost this year than our historical cost. And we're doing that while maintaining firm pricing was the main driver to margin improvement in Q1.

And as we look to Q2 and Q3 in particular, both of those quarters are -- have higher concentrations of sales of our dormant varieties, primarily being sold to DuPont Pioneer. Those also carry higher margin profiles. So as we look at our business in 2018 to 2017, we're -- we feel confident that we're going to be demonstrating margin improvement and more importantly, getting back to your original question about Australian varieties and being optimized, that's certainly part of our go-forward margin expansion opportunity and I think that that's going to be a fundamental tool that we're going to use to continue to drive margins for the next three to five years.

Got it and then --

This year we don't have as many Australian seeds to incorporate into that optimization program.

That's right because you were sold out at one point if I remember correctly and you had a --

Well, the Australian harvest was -- the yields were really low back in May of 2017.

Yeah, got it.

It's absolutely part of our go-forward strategy.

Okay, got it. And then Saudi Arabia obviously it's a headwind and there was talk before about some of those -- some of that land moving to Sudan, other places that you eventually could make up some of that lost revenue. Is that still the case or are you pursuing that or are you just going to maybe just take this as an opportunity to pivot more towards the trait work and move in a different direction?

Yeah, great question. You know, Saudi Arabia is a difficult margin right now. That's pretty clear from all of the press that we're all reading about, the political situations there too. So, you know, in line with our trying to get closer to our customers, we have had meetings in Saudi with some of the dairies and the dairies have gone through their strategies with us in terms of how much production and what kind of production are they going to try to keep in Saudi Arabia, where are they going in terms of neighboring countries to plant some of the alfalfa that they can't grow in Saudi Arabia? Where are they going to buy land in other places all around the world from California to Argentina to wherever to grow alfalfa that they're then going to ship to their cows in Saudi? What kind of short-term philosophy are they trying to take towards importing forage market and lastly, when push comes to shove will they cut cow numbers and just import milk for the Saudi market which has 35 million people and a certain amount of demand for liquid milk and milk products. So we're trying to work through all of those options, see where we can help them, see where there's an opportunity for us as a seed company but that sort of goes back to Sarkis's question, we're trying to -- really trying to understand what the customer really wants and how we can help them get to a better solution than the solution that they may have before we showed up. So we're working on that pretty hard.

Got it and then final question. The term loan, I think Matt you talked about with KeyBank it's for the Pioneer note, that hasn't been finalized, correct? And --

Yes, so Gerry, to clarify, so our working capital facility is with KeyBank, we're working with another agg lender on our 15-year term loan and we are just in the process of finalizing our appraisals on that and once the appraisals are done we can finalize the exact loan amount and close, looking to do that here in the next 30 days or ideally this month.

Okay, and this appraisal, is that the appraisal on the Pioneer assets that -- and then you're going to get --

Yeah, sorry, to clarify this term loan is going to be collateralized by the mill in California and the mill that we bought from Pioneer that's located in Idaho and our R&D facilities. It will be a mortgage backed facility and that's what the appraisals are for.

Got it and I mean you got those assets pretty cheap, I mean, there was a little bit before my time but it sounds like there's an opportunity to sort of extract some value with this. Is that a fair assumption?

Can you repeat the question, I want to make sure I address it properly?

Yeah, I think you got those assets pretty cheap so I mean there's sort of an opportunity to sort of take that loan out, borrow against it and put yourself in a little bit better situation. I mean, maybe putting out some of the asset value to investors is what I'm really trying to get at, what the value is. Yeah.

Well, yeah. We were very comfortable with the valuation we paid and we acquired a tremendous set of assets and we certainly want -- that's our job to put leverage off of those assets as much as possible.

Okay, got it. I appreciate it. Thanks.

(Operator Instructions) Our next question comes from Ben Klieve from Noble Capital Markets, please go ahead with your question.

All right, thank you. A few questions for me here. One, curious about kind of your take on the GMO space after the Pioneer transaction. Do you see more opportunity there or do you think the germplasm targets beyond the Pioneer transaction will largely be conventional?

I'm not sure we understood your question Ben. I mean, we think that assets that we have acquired that are non-GMO are very important. I mean, they're the majority of the sales in the deal. Obviously we believe in traits, we said that about -- I said that at least 20 times in 30 different ways. So we think those are valuable assets. We're still in the process of negotiating that deal. We have until the end of the year. As you can imagine we're -- the other parties to the deal being Pioneer and Forage Genetics or our -- in some ways our allies and in other ways our competitors. So it's a three-way negotiation so it's not an easy negation, I'll jut put it that way and so I'll say no more about it.

Yeah, I'm sure. I'm sure. Fair enough and a couple of other questions here. One question relative to your customer centric approach. I know like you said that those kind of changes don't happen overnight but I'm curious, when you look at the timeline here, do you see this more as a multi-quarter process or a multi-year process given that you have a -- that there's a distribution network in place, I would guess it would be the former but I'm curious what your thoughts are there?

Well you know, it's like anything else in life, you start on a quarterly basis and you do it for years. So yes, to your question, right, good question and that's how she works. It depends on what markets. I mean, the very markets are easier to show, I think -- are going to be easier to show value of alfalfa versus maybe the beef markets which alfalfa is only one of many feeds. So I think it's a market by market analysis and for sure it's not easy and that's why everyone doesn't do it. But, I think it's important for us to understand the value of our products to our customers. I think that's the shorthand for what the question is or our customer-centric sort of approach and, we believe in that. We don't see how -- it might be difficult to do but we don't see how that could be wrong if we learn from our customers what they want to see in our seeds in terms of traits whether they be GM or non-GM or from breeding and we're out to make a better product for them so that hopefully there's added value that we can get a little higher priced so that we can up our returns for our shareholders.

Okay, thank you. And then one last one from me here. Mark I know from your initial comments that you talked about the investments that you thought needed working capital. And I guess besides seasonal buildup, are you happy with the current level investment in the working capital or do you think there's going to -- do you think you're going to need to build this up a bit more here?

I'm happy with our level of working capital. I'm happy with the commitments our shareholders have made to the rights offering and to the equity that they've put into the company. I mean, I'll give you the best thermometer. If you ask my wife she'd go, man for the last five months you've been a very, very happy guy sort of just seemingly in a good mood all of the time. You don't kick the dog anymore and oh man, what the hell happened with you, it must be your new job, that's the only thing that's changed. Boy, you should have taken that job a long time ago. So, all I can say is, yeah, I think we're doing fine on the financial side. Our banks and our equity investors seem to have confidence in our team and we couldn't ask for more than that. So, thanks for the question.

Glad things are going well at work and home now. I'll jump back in queue guys, thank you.

And ladies and gentlemen, at this time we've reached the end of the allotted time for today's question and answer session. I'd like to turn the conference call back over to Mark Wong for any closing remarks.

Well, I'd just like to thank everyone for participating in the call today and listening so intently to our explanation of the Company's progress. We'll have another call in mid-February and we look forward to having the opportunity to communicate to all of you again. Thanks so very much.

Ladies and gentlemen, this does conclude today's conference call, we do thank you for attending. You may now disconnect your lines.