Sacramento, California, USA
May 9, 2018
S&W Seed Company (Nasdaq: SANW) today announced financial results for the third quarter of fiscal 2019 ended March 31, 2019.
"The execution of the strategic plan we implemented over the last year to create a leading multi-crop, middle-market agricultural company is progressing well," commented Mark Wong, President & CEO of S&W Seed Company. "During the quarter, we further integrated our acquisition of the Chromatin sorghum assets, including our farmer-dealer network that significantly broadens our reach within the United States, and continued our advancement of key next generation trait technologies. We are tracking ahead of our original expectations for revenue and EBITDA contribution from our recent sorghum acquisition and anticipate potential additional synergies as we look to accelerate the execution of our international cross-selling opportunities in the coming quarters, particularly in Europe and Australia."
"A key focus of management and the board has been to evolve beyond our dependence on certain geographical markets which carry higher political, regulatory, and economic risks. The importance of this shift came clearly into view during the quarter as we were able to stay on budget for the year despite not making certain shipments of alfalfa seed to Sudan due to the recent political instability. The realignment of our organization across geographic lines (as opposed to product lines), which has renewed our sales focus, should only enhance our diversification going forward."
Mr. Wong concluded, "We feel that the agricultural market headwinds that commenced in 2016 continue to provide an opportunity for a forward-looking, long-term focused company like S&W. Our recent Chromatin acquisition, which is exceeding our initial expectations, is a strong example to build from. I believe the agricultural platform we are building has tremendous value and creates opportunities to expand our product and distribution capabilities in a highly accretive way. I look forward to the continued hard work of the team paying off for shareholders in the coming years."
Financial Results
(Note to readers: As S&W adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) as of July 1, 2018, using the modified retrospective method, there is a lack of comparability of current financial results to prior fiscal periods.)
For the third quarter of fiscal 2019, S&W reported revenue of $18.2 million, compared to revenue of $22.9 million in the third quarter of fiscal 2018. Of the $18.2 million of revenue in the third quarter of fiscal 2019, S&W recognized approximately $5.2 million from its recent sorghum acquisition which occurred on October 25, 2018. The decrease in revenue from the prior year is primarily related to the timing of revenue recognition pursuant to its adoption of ASC 606 effective July 1, 2018, which accelerated revenue from its agreement with Pioneer to the first quarter of fiscal 2019 as opposed to the second and third quarters of fiscal 2019 as well as an impact from the political instability in Sudan, partially offset by increases in Saudi Arabia and Argentina. Had the Company reported under the old revenue recognition standard ASC 605, revenue would have been $22.8 million in the third quarter of fiscal 2019. Excluding the impact of the Chromatin acquisition and under the old revenue recognition standard, revenues for the third quarter of fiscal 2019 would have been $17.6 million.
For the first nine months of fiscal 2019, S&W reported revenue of $62.9 million compared to $54.2 million for the first nine months of fiscal 2018. Of the $62.9 million of revenue in the nine months ended March 31, 2019, S&W recognized approximately $6.7 million from its recent sorghum acquisition. Had the Company reported under the old revenue recognition standard ASC 605, revenue would have been $56.5 million for the first nine months of fiscal 2019. Excluding the impact of the Chromatin acquisition and reporting under the old revenue recognition standard ASC 605, revenues for the first nine months of fiscal 2019 would have been $49.8 million.
Gross margins during the third quarter of fiscal 2019 were 26.3% compared to gross margins of 29.0% in the third quarter of fiscal 2018. Gross margins during the first nine months of fiscal 2019 were 23.8% compared to gross margins of 25.2% in the first nine months of fiscal 2018. The decrease in gross profit margins was primarily due to product sales mix. The sales pricing under our production agreement expiring in May 2019 is lower in fiscal 2019 than in the prior year.
Adjusted operating expenses, excluding transaction related expenses (see Table A1), in the third quarter of fiscal 2019 was $7.4 million compared to $4.6 million in the third quarter of fiscal 2018. The increase in operating expenses for the third quarter of fiscal 2019 can be attributed to approximately $1.8 million of additional expenses from the newly acquired sorghum operations, coupled with $1.0 million of additional investments in our sales and marketing and product development functions. Adjusted operating expenses, excluding transaction related expenses (see Table A2), in the first nine months of fiscal 2019 was $17.9 million compared to $13.2 million in the first nine months of fiscal 2018. The increase in operating expenses for the first nine months of fiscal 2019 can be attributed to approximately $2.9 million of additional expenses from the newly acquired sorghum operations, coupled with $1.8 million of additional investments in our sales and marketing and product development functions.
GAAP net loss for the third quarter of fiscal 2019 was $(3.3) million, or $(0.10) per basic and diluted share, compared to GAAP net income of $1.8 million, or $0.07 per basic and diluted share, in the third quarter of fiscal 2018. GAAP net loss for the first nine months of fiscal 2019 was $(6.1) million, or $(0.21) per basic and diluted share, compared to GAAP net loss of $(0.4) million, or $(0.02) per basic and diluted share, in the first nine months of fiscal 2018.
Adjusted non-GAAP net loss (see Table A1) for the third quarter of fiscal 2019, excluding various items (transaction costs, reduction of anticipated loss on sub-lease land and interest expense – amortization of debt discount), was $(3.2) million, or $(0.10) per basic and diluted share. Adjusted non-GAAP net income (see Table A1) for the third quarter of fiscal 2018, excluding various items (transactions costs and interest expense - amortization of debt discount) was $1.9 million, or $0.08 per basic and diluted share. Adjusted non-GAAP net loss (see Table A2) for the first nine months of fiscal 2019, excluding various items (transaction costs, reduction of anticipated loss on sub-lease land and interest expense – amortization of debt discount), was $(4.8) million, or $(0.17) per basic and diluted share. Adjusted non-GAAP net loss (see Table A2) for the first nine months of fiscal 2018, excluding various items (transactions costs, change in derivative warrant liabilities, interest expense - amortization of debt discount) was $(0.7) million, or $(0.03) per basic and diluted share.
Adjusted EBITDA (see Table B) for the third quarter of fiscal 2019 was $(1.2) million, compared to adjusted EBITDA of $3.1 million in the third quarter of fiscal 2018. Adjusted EBITDA (see Table B) for the first nine months of fiscal 2019 was $0.7 million, compared to adjusted EBITDA of $3.7 million in the first nine months of fiscal 2018.
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