S&W Seed revenues up 84% in Q1 FY 2014

S&W revenues reported an increase of 84% to $12.4 million for the first fiscal quarter ended September 30, 2013. The growth was driven by contributions from the company’s SGI and IVS operations which were acquired subsequent to Q1 of the prior year, offset by a year-over-year decrease in the company’s S&W proprietary operations.

Gross margins were 18.6% during the first quarter compared to 16.0% in the first quarter of fiscal year 2013 reflecting improved gross margin contribution from the company’s proprietary varieties compared to last year, partially offset by contributions from the company’s non-proprietary IVS business which inherently have lower margins. IVS was acquired on October 1, 2012 and, therefore, not included in the prior year’s first quarter results.

Selling, general and administrative expenses (“SG&A”) for the first quarter totaled $1,594,000 compared to $750,000 for the comparable period of the prior year. The increase in SG&A expense versus the prior year was primarily due to the acquisitions of SGI and IVS. In addition, non-cash stock-based compensation totaled $215,000 in the current quarter versus $91,000 in the comparable period in the prior year. SG&A expenses decreased considerably from the $2,366,000 (excluding acquisition costs) incurred in the most recent fourth quarter of fiscal 2013. As a percentage of revenue, SG&A expenses were 13% in the current period compared to 11% in the comparable period of the prior year, and compared to 19% in the most recent fourth quarter of fiscal 2013.

Net income for the first quarter of fiscal 2014 was $41,000, or $0.00 per basic and diluted share, compared to a net income of $89,000, or $0.01 per basic and diluted share, in the first quarter of fiscal 2013.

Adjusted EBITDA, a non-GAAP metric, for the first quarter of fiscal 2014 was $695,000 compared to $315,000 in the first quarter of fiscal 2013. This was an improvement of $379,000 or 120% compared to the first quarter of last year.

First Quarter Operations

The company’s S&W proprietary operations were affected by minimal carry-over of elite proprietary varieties suited for the Middle East market and delays in cleaning and shipping seed from the recent California harvest. Sales through distributors into Mexico were strong. SGI’s operations were somewhat impacted during the first quarter by uncertainty in select markets as certain customers had anticipated an oversupply of seed in the global supply chain following a strong Australian harvest and elected to hold orders.

The company believes that current market conditions, which include the impact of a poor harvest in the Imperial Valley region of California, as stated by trade journals, point to a tight supply market. It is the company’s expectation that upon the conclusion of the recent and short term market uncertainty, strong demand and pricing should commence throughout the remainder of the fiscal year.

The company reiterates that it will continue to be able to secure between 18 and 19 million pounds during the spring and fall 2013 harvest cycles from its production and sourcing capabilities.

Outlook

Based on current seed inventory on hand, estimated new production and seed sourcing inventory expectations prior to the company’s fiscal year end, current outlook of market demand, the ability to obtain seed pricing within their expected ranges, and dependent on any decisions to carry over inventory to the following fiscal year, the Company would expect annual revenues to be in the range of $50 to $65 million.

While the company may see quarter to quarter fluctuations as to the timing of the revenue recognition based on a variety of factors, it is making the decision to attempt to capture the most value for its seed inventory it believes is possible by most likely selling the large majority of its seed in the second half of the company’s fiscal year (January through June). If supply remains tight and the company can continue to optimize the value of its seed, it may hold over a portion of its inventory into the first quarter of fiscal 2015 as well.

As a result of the decisions the company is making above, management expects revenues for the second quarter of fiscal year 2014 to be in the range of $11 to $13 million.