Fresno, California, USA
February 11, 2016
S&W Seed Company (Nasdaq: SANW) today announced financial results for the second quarter of fiscal year 2016 ended December 31, 2015.
Second Quarter Fiscal 2016 Financial Highlights:
- Quarterly revenue increased 75.0% to $24.1 million compared to $13.8 million in the comparable quarter of fiscal 2015;
- Quarterly gross profit margins improved to 16.7% compared to gross profit margins of 14.2% (16.2% on an adjusted basis) for the second quarter of fiscal 2015;
- Quarterly Adjusted EBITDA (see Table B) improved to $1.3 million compared to $0.4 million in the second quarter of fiscal 2015;
- Net income totaled $1.4 million for the second quarter of fiscal 2016 compared to a net loss of $(1.5) million in the second quarter of fiscal 2015;
- Adjusted non-GAAP net income (see Table A-1) of $0.2 million for the second quarter of fiscal 2016 compared to an adjusted non-GAAP loss of $(0.2) million in the year ago period;
- GAAP EPS of $0.10 per diluted share for the second quarter compared to a loss of $(0.13) per diluted share in the second quarter of fiscal 2015; and
- Adjusted Non-GAAP EPS (see Table A-1) for the second quarter of $0.01 per diluted share compared to $(0.02) per diluted share in the second quarter of fiscal 2015.
Quarterly Results
For the second quarter of fiscal year 2016, revenue increased 75.0% to $24.1 million versus $13.8 million in the comparable period of the prior year. The increase in second quarter revenue was primarily attributable to sales under the Company's distribution and production agreements with DuPont Pioneer, which were ahead of seasonal shipping expectations as the Company was able to process and ship seed earlier than anticipated.
Gross profit margins during the second quarter of fiscal 2016 were 16.7% compared to gross profit margins of 14.2% in the second quarter of fiscal 2015, and adjusted gross profit margins of 16.2% in the second quarter of last year. Gross profit margins increased during the second quarter of fiscal 2016 primarily due to sales of the Company's dormant seed varieties to DuPont Pioneer, which were not included in the comparable period of the prior year. The sale of the Company's dormant varieties to DuPont Pioneer generally carry a higher margin profile than its non-dormant business. While the Company benefitted from sales and margin contributions from its DuPont Pioneer agreements, these benefits were offset by higher seed costs within the Company's non-dormant operations, driven by lower than expected yields on the recent alfalfa seed harvests.
Selling, general and administrative (SG&A) expenses for the second quarter of fiscal 2016 totaled $2.3 million compared to $3.0 million (or $1.8 million after excluding non-recurring one-time transaction expenses of $1.2 million associated with the acquisition of the DuPont Pioneer assets) for the comparable period in fiscal 2015. Research and development (R&D) expenses for the second quarter increased to $733,000 from $217,000 in the year ago period. The increase in SG&A and R&D expenses was primarily due to the addition of activities associated with the acquired DuPont Pioneer operations.
Total operating expenses for the second quarter of fiscal 2016 were $3.8 million compared to $4.0 million (or $2.4 million after excluding non-recurring one-time transaction expenses of $1.2 million associated with the acquisition of the DuPont Pioneer assets and the $0.5 million impairment charge) in the year ago period. The increase in total operating expenses is primarily associated with the addition of activities associated with the acquired DuPont Pioneer operations.
In conjunction with the implementation of the Company's international tax planning strategy, the Company recorded a tax benefit during the second quarter of fiscal 2016 related to an unrealized foreign currency exchange loss incurred on an inter-company loan to its wholly owned subsidiary in Australia.
Adjusted non-GAAP net income (see Table A-1) for the second quarter of fiscal 2016, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, gain on sale of marketable securities, loss on equity method investment, and interest expense - amortization of debt discount), was $164,000, or $0.01 per basic and diluted share. Adjusted non-GAAP net loss (see Table A-1) for the second quarter of fiscal 2015, excluding various items (non-seed farming related losses, impairment charges and acquisition / transaction related expenses) was $(247,000), or $(0.02) per basic and diluted share.
GAAP net income for the second quarter of fiscal 2016 was $1.4 million, or $0.10 per basic and diluted share, compared to a net loss of $(1.5) million, or $(0.13) per basic and diluted share, in the second quarter of fiscal 2015. The increase in the Company's net income for the second quarter of fiscal 2016 primarily resulted from the increase in gross profit and the tax benefit recorded in that period.
Adjusted EBITDA, a non-GAAP metric (see Table B), for the second quarter of fiscal 2016 was $1.3 million compared to Adjusted EBITDA of $396,000 in the second quarter of fiscal 2015.
Outlook
Based upon the evaluation of information currently available to management, the Company continues to expect to generate annual revenue of approximately $95 million for the fiscal year ending June 30, 2016, reflecting an increase of approximately 17% over fiscal 2015.
Management Discussion
Mark Grewal, president and chief executive officer of S&W Seed Company, commented, "We are pleased with the results of the second quarter, as alfalfa seed markets continue to be characterized by improved demand and decreased supply on a global basis. The acquisition of our dormant alfalfa seed operations continues to be a tremendous strategic driver for S&W. Particularly, we are seeing enhanced cross-selling opportunities as we introduce our expanded product portfolio into our existing distribution channels, as well as a broadening of contracted growers to increase our seed production capabilities. We are anticipating an approximate 15% increase in contracted acreage during calendar year 2016 as compared to 2015, which will be a key contributor to both revenue growth and improved margins."
Matthew Szot, chief financial officer of S&W Seed Company, commented, "During the second quarter, we successfully processed and shipped product ahead of schedule to our largest customer, DuPont Pioneer. While demand remains strong, our gross profit margins continue to be impacted during the current year as the weaker than anticipated seed yields have increased our seed production costs. As we move to fiscal 2017 and beyond, we have terminated production contracts where we carry farming and yield risk, which should result in expanded margins going forward."
Mr. Szot continued, "We continue to make strides to strengthen our balance sheet. Our original convertible debt balance of $27 million has been paid down to $12.5 million through today. We look forward to retiring the remaining convertible debt balance over the next 12 months."
Mr. Grewal concluded, "Fiscal 2016 is on target to finish with record revenue of approximately $95 million as we see continued strength in our end markets. With strong progress being made within our distribution and production platforms this year, we continue to make investments to maintain a leadership position into the future. Our diverse product portfolio continues to be bolstered as we make progress bringing next generation seed varieties to the market through our various collaborations. Overall, we have made tremendous strides over the last year to position S&W as one of the leading alfalfa seed companies in the world, and look forward to continued progress into the future."
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