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S&W Seed Company announces results for the second quarter of fiscal year 2015


Five Points, California, USA
February 12, 2015

S&W Seed Company (Nasdaq: SANW) today announced financial results for the second quarter of its fiscal year 2015 ended December 31, 2014.

Recent Corporate Events and Highlights:

•On December 31, 2014, S&W acquired alfalfa production and research facility assets, as well as conventional (non-GMO) alfalfa germplasm from Dupont Pioneer, creating the largest and most diversified alfalfa seed company in the world.

•On January 26, 2014, S&W agreed to sell 759 acres of farmland in Calipatria, California and 30 acres of farmland in Five Points, California for $7.3 million in total proceeds. The Company will use $5.0 million in proceeds (remaining after repayment of $2.3 million in related mortgage debt) to prepay convertible debentures issued to fund the DuPont Pioneer acquisition.

•In December 2014, the Company filed two patents for unique stevia varieties.

◦SW107 exhibits increased concentrations of Reb-A sweetener, higher leaf mass production and an improved taste profile that has little or no aftertaste for the commercial production market; and

◦SW201 exhibits an improved taste profile that is well suited for producing fresh and dry leaf stevia, as well as the home gardening customer. Fresh and dry stevia leaves can be used as a sweetener in beverages, such as teas or coffee, and in cooking applications that might require the leaf to be crushed into a powdered substance.

•The Company expanded management expertise by adding alfalfa industry veterans (from DuPont Pioneer) Robin Newell, Kirk Rolfs and Mark Smith, as well as other key employees.

•For the third quarter ending March 31, 2015, S&W expects to report record revenue of approximately $27 to $30 million, with improved gross profit margins.

(Note: The balance sheet as of December 31, 2014 reflects the DuPont Pioneer alfalfa acquisition and concurrent debt and equity financing. The statement of operations for the second quarter does not include any activity from the DuPont Pioneer acquisition that closed on December 31, 2014, other than transaction expenses being charged to SG&A.)

Quarterly Results

For the second quarter of fiscal year 2015 ended December 31, 2014, S&W reported revenue of $13.8 million, above previously announced estimates of $12 million, versus $11.5 million in the comparable period of the prior year. The increase in revenue over the comparable period in the prior year is primarily attributable to an increase in sales of seed (both proprietary and non-proprietary) into Saudi Arabia.

Adjusted gross margins (excluding the effects of non-seed farming related losses) during the second quarter were 16.2% compared to gross margins of 20.7% in last year’s second quarter and compared to gross margins of 16.1% in the immediately preceding first quarter. The Company incurred losses of approximately $270,000 in connection with the farming of various non-seed crops, including hay, sorghum and triticale, primarily utilized for land reclamation in preparation for isolating GMO production fields. Including the effects of non-seed farming related losses, gross margins for the second quarter were 14.2%. The decrease in adjusted gross profit margins compared to last year’s second quarter can be attributed to increased sales of lower margin seed sold and resulting lower concentration of our highest margin products sold, as well as a decrease in milling contribution during the quarter. While there will continue to be quarterly fluctuations in gross profit margins based on product sales mix, the Company anticipates improved gross margins for the remainder of fiscal year 2015 due to pricing strength that appears to be taking hold within certain end markets, a change in sales mix to higher-margin products and gross margin contributions from the operations acquired from DuPont Pioneer.

Adjusted selling, general and administrative (“SG&A”) expenses for the second quarter, excluding the non-recurring one-time transaction expenses for the acquisition, totaled $1.86 million compared to $1.47 million for the comparable period of the prior year. Including the transaction expenses of the acquisition, SG&A for the second quarter totaled $3.0 million. The Company incurred one-time non-recurring expenses of approximately $1.15 million in connection with the acquisition of DuPont Pioneer’s alfalfa seed research and production assets.

Adjusted non-GAAP net loss for the second quarter of fiscal 2015, excluding the non-seed farming related losses, impairment of $500,000 for unrecovered stand establishment and growing crop costs that were incurred on the farmland being sold prior to farming revenues being received, and acquisition related expenses (See Non-GAAP Adjustments to Income Statement), was $(247,000), or $(0.02) per basic and diluted share, compared to $110,000, or $0.01 per basic and diluted share, in the second quarter of fiscal 2014. Including the various one-time expenses identified, net loss was $(1.5) million, or $(0.13) per basic and diluted share.

Adjusted EBITDA, a non-GAAP metric (see Table A), for the second quarter of fiscal 2015 was $396,000 compared to Adjusted EBITDA of $883,000 in the second quarter of last fiscal year.

Management Discussion

Mark Grewal, president and chief executive officer of S&W Seed Company, commented, “This is a very exciting time for everyone at S&W. We set out five years ago to build a company that could take advantage of one of the most compelling opportunities in agriculture — the desire for increased protein consumption in a growing global population. Alfalfa is the gateway to higher protein levels in animals. Our goal is to be the world’s largest and most diversified alfalfa seed company. Our DuPont Pioneer acquisition is an important step toward that goal, and I couldn’t be more excited about the opportunity that we have in front of us.”

Matthew Szot, chief financial officer of S&W Seed Company, commented, “The past few months represented a transformational period for S&W as we completed our acquisition of assets from DuPont Pioneer, closed a significant financing to fund the acquisition and negotiated the sale of non-core land holdings. Going forward, we believe that the addition of the dormant alfalfa operations from DuPont Pioneer will allow us to further leverage our operating structure to improve profitability and that our distribution and productions arrangements with DuPont Pioneer will provide a greater level of consistency and predictability to our operations.”

Mr. Szot continued, “During the second quarter, we moved higher quantities of lower margin alfalfa seed varieties than we originally anticipated. This has the added benefit of increasing our revenue, but impacts our gross margins. For the remainder of fiscal year 2015, we expect gross margins to improve based on a shift in sales mix to higher margin products and a stronger price environment.”

Mr. Grewal concluded, “The Company continues to execute on our business plan to become the largest and most diversified alfalfa seed company in the world. We believe that strengthening end markets for our non-dormant alfalfa seed and the addition of dormant alfalfa operations from DuPont Pioneer put us in a position to have a strong second half of fiscal 2015.”



More news from: S&W Seed Company


Website: http://www.swseedco.com/

Published: February 12, 2015

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