Five Points, California, USA
November 11, 2014
S&W Seed Company (Nasdaq: SANW) today announced financial results for its first quarter of fiscal year 2015 ended September 30, 2014.
Quarterly Results
For the first fiscal quarter ended September 30, 2014, S&W reported revenues of $8.2 million, slightly above previously announced guidance, versus $12.4 million in the comparable period of 2013. Revenue during the quarter was impacted by reduced orders from the Middle East as a result of sales into the region by other sellers of lower-priced seed from the robust 2013 Australian harvest and by the continued economic crisis in Argentina which caused seed normally destined for that country to be diverted to the Middle East, further impacting the market. The company expects sales to increase in the Middle East as the supply of the lower-priced seed diminishes.
Gross margins during the first quarter were 16.1% compared to gross margins of 18.6% in last year's first quarter. The decrease in gross profit margins can be attributed to a change in sales mix for the quarter which resulted in an increased percentage of lower priced and slower moving seed sold and resulting lower concentration of our highest margin products sold. There will continue to be quarterly fluctuations in gross profit margins based on revenue mix, but the company anticipates that gross margins in our core business will improve in fiscal year 2015 as compared to fiscal year 2014 as we execute on our strategy of creating special blends of seed that are optimized to create strong performance at an attractive sales price to the customer but at a lower cost to S&W than competing products.
Selling, general and administrative expenses ("SG&A") for the first quarter totaled $1.8 million compared to $1.6 million for the comparable period of the prior year. The increase in SG&A expense versus the prior year was due to increased expenses associated with a potential acquisition.
Net loss for the first quarter of fiscal 2015 totaled $(874,000), or $(0.08) per basic and diluted common share, compared to net income of $41,000, or $0.00 per basic and diluted common share, during the first quarter of last year.
Adjusted EBITDA, a non-GAAP metric (see Table A), for the first quarter of fiscal 2015 decreased to a loss of $479,000 compared to positive Adjusted EBITDA of $695,000 in the first quarter of last fiscal year.
Outlook
Based upon the evaluation of information currently available to management, the company estimates revenues for the second quarter of fiscal year 2015 ended December 31, 2014 to be approximately $12 million. While markets remain dynamic and quarterly variation should be expected, management's goal is approximately 10% organic revenue growth in fiscal 2015.
Management Discussion
Mark Grewal, president and chief executive office of S&W Seed Company, commented, "As we discussed last quarter, order delays from Middle Eastern customers had what we think is a transient impact on our first quarter. The robust supply of seed from the 2013 Australia harvest, coupled with the economic crisis in Argentina, diverted greater quantities of lower priced seed to certain key markets longer than anticipated. We believed that this lower priced seed, much of it lower quality, would work its way through the market in the fourth quarter of fiscal 2014. It now appears that this will more likely occur in the second or third quarters of our fiscal 2015. While these market disruptions certainly have an impact on our short-term performance and can cause quarter-to-quarter variation, we believe that the actions that we have taken over the last couple of years to be a preeminent supplier to the alfalfa seed market will pay off nicely as Saudi Arabia, Argentina and others markets return to more normal patterns."
Matthew Szot, chief financial officer of S&W Seed Company, commented, "Gross margins during the first quarter were negatively impacted by overall revenues that included a greater percentage of lower margin seed. We expect that as the markets return to more traditional patterns, and our revenue mix normalizes, we will recognize the benefits of our initiatives to increase gross margins. These initiatives should yield year-over-year improvements that are a key driver to improved profitability. We continue to manage our balance sheet with the orderly collection of our receivables and inventory balances consistent with our expectations of growth. With working capital of $20.5 million and a tangible book value of $31.2 million, we believe we continue to be in a good position to capitalize on opportunities going forward."
Mr. Grewal concluded, "While there is still much work that needs to be done and near-term market factors at play that have created near-term impediments, a lot has been accomplished to build a leadership position in the alfalfa seed industry for many years to come. We have done a good job of increasing our seed production capabilities with strong geographic diversification into the Imperial Valley, Australia and Canada. We are expanding our product capabilities to include not only non-dormant, but also dormant alfalfa seed production with a strong product development pipeline to include tropical varieties, and are pursuing multiple biotech initiatives. We are also expanding our distribution capabilities through both expanded supplier agreements and joint ventures which should provide us with added diversification in the future to avoid the reliance that we have on certain key markets. While there is certainly a frustration with the near-term market dynamics, we are dedicated to doing everything we can do maximize the results of S&W as we return to more normal levels."
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