Five Points, California, USA
September 29, 2014
S&W Seed Company (Nasdaq: SANW) today announced financial results for its fourth quarter and fiscal year ended June 30, 2014.
Recent Corporate Developments:
- S&W and Bioceres S.A., a leading agricultural biotechnology company in Latin America, announced plans to create a Joint Venture to sell S&W's elite alfalfa varieties in Argentina directly to local dealers and farmers, and to jointly develop and commercialize biotech-enhanced alfalfa varieties using S&W germ-plasm and Bioceres technology.
- S&W entered into a distribution agreement with one of the largest livestock input companies in Pakistan, the world's third largest milk producer, to supply the market with S&W's elite alfalfa seed varieties.
- S&W contracted approximately 1,000 acres of seed production in Australia for growing the company's highest margin S&W varieties, the production of which was previously limited to higher cost California.
- S&W is preparing patent applications for stevia varieties with improved taste profiles, supported by data from the most recent field trials of the company's stevia breeding program.
Fourth Quarter and Fiscal Year 2014 Highlights:
- Record fourth quarter revenues of $19.6 million compared to $12.7 million in the comparable quarter of fiscal 2013, an increase of 53.8%.
- Record fiscal year 2014 revenues of $51.5 million, compared to $37.3 million during fiscal year 2013, an increase of 38.0%.
- Gross margins improved to 19.4% during fiscal year 2014 compared to adjusted gross margins of 15.9% for the prior fiscal year.
- Adjusted EBITDA increased 141% for the fourth quarter to $1.6 million (see Table A) compared to $682,000 in last year's fourth quarter.
- Adjusted EBITDA for fiscal year 2014 was $3.2 million (see Table A) compared to $1.2 million a year ago, an increase of 167%.
- Net income per basic and diluted share of $0.05 for the fourth quarter of fiscal year 2014 compared a loss of ($0.08) per basic and diluted share in the fourth quarter of the prior year.
- Net income per basic and diluted share of $0.03 for the current year compared to a loss per share of $(0.29) in the prior year.
Quarterly Results
For the fourth fiscal quarter ended June 30, 2014, S&W reported revenues of $19.6 million versus $12.7 million in the comparable period of the prior year. Revenue during the quarter was driven by increases in Northern Africa and the Middle East, offset by decreases in sales to the United States compared to the year ago period.
Gross margins during the fourth quarter were 18.6% compared to adjusted gross margins of 20.4% in last year's fourth quarter (which excluded a $192,000 inventory charge for stevia recorded in the fourth quarter of the prior year). The decrease in gross margins compared to the fourth quarter of the prior year is due largely to the mix of seed sold during the quarter.
Selling, general and administrative expenses ("SG&A") for the fourth quarter totaled $2.0 million compared to $2.7 million for the comparable period of the prior year. The decrease in SG&A expense versus the prior year was primarily due to decreases in the company's non-cash stock-based compensation. Also, included in SG&A last year was $301,000 of acquisition-related expenses. Non-cash stock-based compensation totaled $220,000 in the current quarter versus $685,000 in the comparable period in the prior year.
Net income for the fourth quarter of fiscal 2014 improved to $620,000, or $0.05 per basic and diluted common share, compared to a net loss of $(879,000), or $(0.08) per basic and diluted common share, during the fourth quarter of last year. Excluding the effects of the $192,000 inventory charge for stevia and a $301,000 impact on SG&A due to acquisition-related expenses last year (see adjusted statement of operations), net loss in the fourth quarter of last year would have been $(539,000), or $(0.05) per basic and diluted share.
Adjusted EBITDA, a non-GAAP metric (see Table A), for the fourth quarter of fiscal 2014 improved to $1.6 million compared to $682,000 in the fourth quarter of last fiscal year.
Fiscal Year Results
Revenues for the fiscal year ended June 30, 2014 were $51.5 million, compared to $37.3 million in the previous fiscal year.
Gross margins were 19.4% during fiscal 2014, compared with 15.9% (excluding stevia-related operations in the previous fiscal year).
Net income was $373,000, or $0.03 per basic diluted share, for fiscal 2014, compared to a net loss of $2.5 million, or $(0.29) per basic and diluted share, for fiscal 2013. Excluding the stevia charge and non-recurring acquisition-related expenses, adjusted net loss was $(678,000), or $(0.08) per basic diluted share, for fiscal 2013.
Adjusted EBITDA (see Table A) for fiscal 2014 was $3.2 million, compared with $1.2 million in the prior year.
Outlook
Based upon the evaluation of information currently available to management, the company estimates revenues for the first quarter of fiscal year 2015 ended September 30, 2014 to be approximately $7.5 million. While markets remain dynamic and quarterly variation should be expected, management believes that its recent initiatives, combined with strength in certain markets, will enable the company to reach its goal of approximately 10% organic revenue growth in fiscal 2015.
Management Discussion
Mark Grewal, president and chief executive officer of S&W Seed Company, commented, "We are pleased with the accomplishments of the fourth quarter and fiscal year 2014, as revenues and adjusted EBITDA both hit records; however, much work remains to fully profit from the alfalfa seed platform that we are creating at S&W. We are broadening our distribution capabilities in key regions where we have historically lacked a strong presence, and are partnering with leading companies in agricultural biotech to add new traits to our already high yielding varieties. We believe there will not be a 'one-size-fits-all-solution' across the globe for the ideal alfalfa seed variety and development method; therefore, our approach is to work with partners to develop a broad spectrum of varieties that will meet customer needs for both classic breeding and biotech. We think our agreements with Monsanto and Bioceres, as well as others to come, will enable us to fill a leadership role in the global alfalfa seed market."
Mr. Grewal continued, "In fiscal 2014, we saw strength in Northern Africa and Mexico, offset by softness in the Middle East as the market continued to sell through higher levels of non-proprietary alfalfa seed inventory that traditionally would have been sold into South America. We did see the beginning stages of improvement in Saudi Arabia in the fourth quarter; however, we are still not back to historical levels. We are targeting our distribution to new geographical areas to address geographical shifts in protein demand. Global production and global markets remain dynamic; however, we believe we are well positioned to capitalize on these shifts."
Matthew Szot, chief financial officer of S&W Seed Company, commented, "While margins were down in Q4 compared to the period a year ago, this was largely due to the mix of sales during the fourth quarter which was anticipated. Our long-term gross margin expansion opportunities remain firmly in place, as seen in our transition of production in Australia to our elite S&W varieties. Additionally, we believe that changes in markets can create opportunities, and we remain committed to looking for acquisitions that can be accretive to our operations both in the near-term, as well as the long run."
Mr. Grewal concluded, "The agricultural marketplace as a whole have been dynamic this past year. Certain commodities are at dramatically reduced prices and the threat of water shortages continues to persist, while other commodities continue to trade near record levels. We believe that when the market experiences these type of changes, opportunities present themselves to significantly transform an industry, especially one with as strong a long-term track record as alfalfa. We believe we have positioned S&W to benefit from the longer-term macro trends in the marketplace, and to also take advantage of some near-term opportunities. With a strong development pipeline of internally developed products in place such as tropical, dormant and biotech, as well as partnered products and enhanced distribution channels, we look forward to being the leading alfalfa seed provider for years to come."
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