Hanford, California, USA
February 9, 2017
S&W Seed Company (Nasdaq: SANW) today announced financial results for the second quarter of fiscal year 2017 ended December 31, 2016.
Recent Financial Highlights:
- Revenue of $24.2 million during the second quarter of fiscal 2017, compared to $24.1 million in the second quarter of fiscal 2016;
- Gross profit margins of 21.5% during the second quarter of fiscal 2017, compared to gross profit margins of 16.7% in the second quarter of fiscal 2016;
- GAAP net income of $1.2 million during the second quarter of fiscal 2017, compared to net income of $1.4 million in the second quarter of fiscal 2016;
- Adjusted non-GAAP net income (see Table A-1) of $467,000 during the second quarter of fiscal 2017, compared to adjusted non-GAAP net income of $164,000 in the second quarter of fiscal 2016;
- GAAP EPS of $0.07 per basic share and $0.01 per diluted share for the second quarter of fiscal 2017, compared to GAAP EPS of $0.10 per basic and diluted share in the second quarter of fiscal 2016;
- Adjusted Non-GAAP EPS (see Table A-1) for the second quarter of fiscal 2017 of $0.03 per basic and diluted share, compared to $0.01 per basic and diluted share in the second quarter of fiscal 2016; and
- Adjusted EBITDA (see Table B) of $2.2 million during the second quarter of fiscal 2017, compared to $1.3 million in the second quarter of fiscal 2016; and
- Continued to reduce the Company's convertible debt, with only $190,000 outstanding as of February 9, 2017.
Recent Corporate Developments:
- Expanded alfalfa seed portfolio with the advancement of 45 new proprietary seed varieties;
- Entered the "vertical production model" for the Company's hybrid grain sorghum and hybrid forage sorghum operations, which S&W anticipates will allow it to capture a higher gross profit dollar and move closer to the end customer;
- Commenced commercial seed production for one of the Company's proprietary hybrid sunflower seed varieties in New South Wales, Australia, marking S&W's initial entry into the "vertical production model" for sunflower, a nearly $1 billion global crop; and
- Received trademark for 'Kandi Leaf' stevia in the United States and Mexico, which will be applied on S&W's unique stevia lines bred for enhanced flavor characteristics and marketed for the fresh and dry leaf market.
Market Outlook:
Recent regulatory uncertainty in Saudi Arabia surrounding water use restrictions for large forage producers is causing certain customers in the region to defer purchases and/or reduce inventory carrying levels in the near-term. Based on information currently available to management, we believe that such regulatory uncertainty will be resolved or clarified in the coming months. This timing of shipments may have an impact on S&W's recent annual revenue guidance of approximately $100 million.
Management Discussion
Mark Grewal, president and chief executive officer of S&W Seed Company, commented, "We had solid performance during the quarter within our core alfalfa seed operations and made good strides on the development front in our sorghum, sunflower, and stevia programs, which we expect will be key contributors in the coming years. We continue to strategically expand our operations into complementary crops by leveraging our distribution and production infrastructure. We are optimistic that the entry into the vertical production model for sorghum and sunflower will allow us to capture a larger share of the revenue potential for these crops that continue to gain traction around the world for their health attributes. Longer-term, we believe sorghum and sunflower have the ability to be sizeable contributors to S&W's overall business."
Mr. Grewal added, "While the global alfalfa seed markets have generally remained stable, we are seeing some uncertainty in Saudi Arabia as regulatory discussions surrounding water use restrictions continue to occur. While these discussions have been ongoing for many years, which has led to the transition of certain alfalfa production in the region to surrounding countries, the recent dialogue has caused certain distributors to defer purchases and/or reduce inventory levels. Ultimately, demand for alfalfa by the dairy industry in Saudi Arabia is expected to remain strong. With our wide distribution capabilities, we believe we will be prepared to meet the alfalfa demands for the dairies wherever production might be."
Matthew Szot, chief financial officer of S&W Seed Company, commented, "The second quarter demonstrated continued solid execution within our U.S. dormant alfalfa seed operations and significant gross profit margin improvement compared to the year ago period due to lower cost of goods coupled with an improved sales mix. The improvements operationally led to a 68% increase in our adjusted EBITDA which totaled $2.2 million for the quarter, helping us to continue to strengthen our balance sheet, which now has only $190,000 of convertible debt outstanding. We expect to retire the balance of the convertible debt on March 1, 2017."
Mr. Grewal concluded, "Our core alfalfa seed operations, coupled with our growth opportunities in sorghum, sunflower and stevia allow for us to capitalize on key global agricultural trends, including increased protein consumption and nutritional benefits. Our superior trait development also addresses key trends of improved yield and overall farming efficiencies. We look forward to leveraging our core assets, including a worldwide distribution base, a large and diversified production base, and integrated R&D capabilities, to continue helping farmers around the world meet the increased global demands for agricultural products on decreasing arable lands."
Quarterly Results
For the second quarter of fiscal year 2017, revenue was $24,226,000, compared to $24,141,000 in the second quarter of fiscal 2016.
Gross profit margins during the second quarter of fiscal 2017 were 21.5%, compared to gross profit margins of 16.7% in the second quarter of fiscal 2016. The improvement in gross profit margins was largely attributable to decreases in cost of goods sold compared to the year ago period on the Company's non-dormant varieties and favorable sales mix to higher margin dormant varieties. The Company continues to anticipate gross profit margins to improve over the course of fiscal 2017 compared to fiscal 2016.
Selling, general and administrative (SG&A) expenses were $2.6 million, and total operating expenses were $4.2 million, compared to the second quarter of the prior year of $2.3 million and $3.8 million respectively.
Adjusted EBITDA (see Table B) for the second quarter of fiscal 2017 was $2.2 million compared to Adjusted EBITDA of $1.3 million in the second quarter of fiscal 2016.
GAAP net income for the second quarter of fiscal 2017 was $1.2 million, or $0.07 per basic share and $0.01 per diluted share, compared to GAAP net income of $1.4 million, or $0.10 per basic and diluted share, in the second quarter of fiscal 2016.
Adjusted non-GAAP net income (see Table A-1) for the second quarter of fiscal 2017, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, and interest expense - amortization of debt discount), was $467,000, or $0.03 per basic and diluted share. Adjusted non-GAAP net loss (see Table A-1) for the second quarter of fiscal 2016, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, gain on sale of marketable securities, loss on equity method investment, and interest expense - amortization of debt discount) was $164,000, or $0.01 per basic and diluted share.
Financials
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