Sacramento, California, USA
May 9, 2018
S&W Seed Company (Nasdaq: SANW) today announced financial results for the third quarter of fiscal year 2018 ended March 31, 2018.
Mark Wong, president and chief executive officer of S&W Seed Company, commented, "Progress was made during the third quarter on certain key initiatives of our go forward strategy to transition S&W into a more diversified middle market agricultural company. Specifically, we intensified our efforts in our stevia program through expanded collaborations, both on the commercialization and development front. We believe there is increasing interest in the marketplace for minimally processed stevia-based sweeteners from producers with U.S.-based production capabilities. We also believe our current stevia varieties, as well as varieties we are developing in collaboration with our partners, are ideally positioned to capitalize on these trends. Additionally, the appointment to our board of directors of Alan Willits has enabled us to enhance our stevia commercialization knowledge. Mr. Willits is a 38-year executive with Cargill, is the chairman of Cargill Asia Pacific and leads Cargill's Agricultural Supply Chain business in the Asia Pacific region, the region in which stevia is currently most prevalently grown. We look forward to continued progress on this key value enhancing component of our business in the quarters to come."
"I am pleased with the execution during the third quarter within our domestic alfalfa operations. Revenues during the third quarter increased by 9.2% over the third quarter of the prior year, driven primarily by timing of shipments under our distribution agreement with DuPont Pioneer, while gross profit margins improved by 140 basis points to 29.0%. We plan to stay focused on maintaining strong pricing, coupled with reductions of production costs of proprietary seed, where possible. As we have reported during the last year, the Saudi Arabian market conditions continue to be difficult and it remains uncertain as to when a return to market equilibrium will occur. While the elevated inventory levels in the distribution channel appear to have decreased, dealers and distributors in the region remain apprehensive to take on additional supply until a perceived equilibrium in the Saudi Arabian market is reached. We therefore are further reducing our expectations for sales in the Saudi Arabian market in the near term."
Mr. Wong concluded, "Our management team and advisors, along with our board of directors, are aligned on our go forward strategy. We will work to continue our pathway towards enhancing our trait technology capabilities to bring products to market where we can capture an increasing portion of the seed economics; build out our alfalfa, sorghum and sunflower programs with an emphasis on countries in which we believe the regulatory, economic and political environments allow for a more stable market to operate in, such as the United States and Australia; and commercialize our stevia program. We believe these actions will position the company for future success, while minimizing risks to the extent possible. I look forward to the further execution on this strategy in the upcoming quarters."
Third Quarter Fiscal Year 2018 Financial Highlights and Recent Corporate Developments:
- Revenue during the third quarter of fiscal 2018 was $22.9 million compared to $21.0 million in the third quarter of the prior year;
- Gross profit margins improved by 140 basis points to 29.0%, compared to gross profit margins of 27.6% in the third quarter of fiscal 2017 as S&W continues to execute on its gross margin expansion initiatives;
- Adjusted EBITDA (see Table B) increased to $3.1 million for the third quarter of fiscal 2018, compared to $2.7 million in the third quarter of fiscal 2017;
- GAAP net income (see Table A-1) of $1.8 million, or $0.07 per basic and diluted share during the third quarter of fiscal 2018, compared to GAAP net income of $1.3 million, or $0.07 per basic and $0.02 per diluted share, in the third quarter of fiscal 2017;
- Adjusted non-GAAP net income (see Table A-1) of $1.9 million, or $0.08 per basic and diluted share during the third quarter of fiscal 2018, compared to adjusted non-GAAP net income of $830,000, or $0.05 per basic and diluted share, in the third quarter of fiscal 2017; and
- In April 2018, acquired a selection of sorghum germplasm to expand our portfolio of sorghum products to include biofuel types.
Market Outlook:
Based on information currently available to management, S&W expects to report revenue for fiscal 2018 between $65 and $70 million as we are further reducing our expectations for sales into the Saudi Arabian market in the near term. Adjusted EBITDA is expected to be between $2.0 and $3.5 million on improved gross margins offset by decreased sales into Saudi Arabia.
Quarterly Results
For the third quarter of fiscal year 2018 ended March 31, 2018, S&W reported revenue of $22.9 million compared to revenue of $21.0 million in the third quarter of fiscal 2017. The increase was largely attributable to increased shipments to DuPont Pioneer under the Company's distribution agreement, offset by decreases to Saudi Arabia as a result of water regulations in the country.
Gross margins during the third quarter of fiscal 2018 improved 140 basis points to 29.0% compared to gross margins of 27.6% in the third quarter of fiscal 2017. This improvement in gross profit margins was primarily due to product sales mix during the current period where we had a higher concentration of sales, as a percentage of total revenue, to DuPont Pioneer; coupled with reductions of product costs of proprietary seed. This improvement in margin is consistent with management's previously discussed initiatives to drive improvements in gross margins.
Adjusted operating expenses (see Table A-1) during the third quarter of fiscal 2018 were $4.6 million, compared to $4.2 million in the third quarter of fiscal 2017. Included in the third quarter of the prior year was an impairment charge of $319,000 related to the carrying value of certain stand establishment assets which were deemed impaired and uncollectible from a certain sub-lessee. Including this impairment charge, total operating expenses in the third quarter of the prior year were $4.6 million.
GAAP net income for third quarter of fiscal 2018 was $1.8 million, or $0.07 per basic and diluted share, compared to GAAP net income of $1.3 million, or $0.07 per basic and $0.02 per diluted share, in the third quarter of fiscal 2017.
Adjusted non-GAAP net income (see Table A-1) for the third quarter of fiscal 2018, excluding certain items (transaction costs and interest expense - amortization of debt discount), was $1.9 million, or $0.08 per basic and diluted share. Adjusted non-GAAP net income (see Table A-1) for the third quarter of fiscal 2017, excluding various items (impairment charges, change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investment, and interest expense – amortization of debt discount), was $830,000, or $0.05 per basic and diluted share.
Adjusted EBITDA (see Table B) for the third quarter of fiscal 2018 was $3.1 million, compared to adjusted EBITDA of $2.7 million for the third quarter of fiscal 2017.
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