S&W Seed Company announces results for the third quarter of fiscal 2017

May 10, S&W Seed Company announced financial results for the third quarter of fiscal year 2017 ended March 31, 2017.

Recent Financial Highlights:

• Revenue of $21.0 million during the third quarter of fiscal 2017, compared to revenue of $25.0 million in the third quarter of fiscal 2016;
• Revenue, excluding Saudi Arabia is up 6.8% year-to-date, compared to revenue, excluding Saudi Arabia, in the corresponding period of fiscal 2016;
• Gross profit margins for the third quarter of fiscal 2017 improved to 27.6%, compared to gross profit margins of 22.0% in the third quarter of fiscal 2016;
• GAAP net income increased to $1.3 million during the third quarter of fiscal 2017, compared to GAAP net income of $0.6 million in the third quarter of fiscal 2016;
• Adjusted non-GAAP net income (see Table A-1) of $830,000 during the third quarter of fiscal 2017, compared to adjusted non-GAAP net income of $556,000 in the third quarter of fiscal 2016;
• GAAP EPS of $0.07 per basic share and $0.02 per diluted share for the third quarter of fiscal 2017, compared to GAAP EPS of $0.04 per basic and diluted share in the third quarter of fiscal 2016;
• Adjusted Non-GAAP EPS (see Table A-1) for the third quarter of fiscal 2017 of $0.05 per basic and diluted share, compared to adjusted Non-GAAP EPS of $0.04 per basic and diluted share in the third quarter of fiscal 2016;
• Adjusted EBITDA (see Table B) of $2.7 million for the third quarter of fiscal 2017, compared to adjusted EBITDA of $2.7 million in the third quarter of fiscal 2016;
• Year-to-date Adjusted EBITDA (see Table B) increased $463,000, or 13.6% to $3.9 million, compared to Adjusted EBITDA of $3.4 million in the corresponding period of fiscal 2016; and
• Fully retired the Company's convertible debt on March 1, 2017.

Recent Corporate Developments:

• Granted two patents covering the Company's unique stevia varieties by the U.S. Patent and Trademark Office, one for a unique variety addressing the commercial processing market, and one for a unique variety addressing the fresh and dry leaf market; and
• Introduced the Company's first non-dormant, salt tolerant alfalfa seed variety with the Genuity® Roundup Ready® technology (SW9215RRS).

Market Outlook:

As previously discussed, recent regulatory uncertainty in Saudi Arabia surrounding water use restrictions for large forage producers is causing certain customers in the region to defer purchases and/or reduce inventory carrying levels in the near-term. Based on information currently available to management, including recent dialogue with distributors in the area, we believe there is a high likelihood that certain shipments previously expected to ship in fiscal 2017 will be deferred until fiscal 2018. The Company currently expects revenue for fiscal 2017 to range between $82 and $87 million and the Company currently expects Adjusted EBITDA for fiscal 2017 to range between $5.7 and $7.1 million.

Management Discussion

Mark Grewal, President and Chief Executive officer of S&W Seed Company, commented, "We continue to strongly execute on our objectives of driving gross margin improvements and market share expansion, despite the uncertainty taking place in Saudi Arabia. Revenues excluding Saudi Arabia are up 6.8% year-to-date to $51.2 million. Meanwhile, we are seeing the results of our initiatives to improve gross margins, as we had 27.6% gross profit margins for the quarter, a 560-basis point improvement from the third quarter of the prior year. While the Saudi Arabia regulatory environment is resulting in a deferral of certain shipments into next fiscal year and shift of production to surrounding countries, we continue to maintain strong market share in alfalfa seed. We believe we are poised to benefit from this geographic shift taking place due to our strong distribution into Sudan and Egypt, and other areas throughout the Middle East and North Africa."

Mr. Grewal added, "We are optimistic that many of our important long-term development initiatives are on the cusp of delivering incremental growth to S&W. We recently launched our high yielding, salt tolerant variety containing the Roundup Ready® technology which we believe will be well accepted in the U.S. market. We also were granted two stevia patents, one for the commercial processing market and one for the fresh and dry leaf market, which we believe have an opportunity to have a significant impact on the stevia production landscape which is currently limited to a few select varieties. Finally, we have made good strides in the commercial production of our sorghum and sunflower operations with the first harvest of sorghum completed in April 2017."

Matthew Szot, Chief Financial Officer of S&W Seed Company, commented, "A number of important financial milestones were achieved during the third quarter, including the retirement of our convertible debt and delivering on solid gross profit margin expansion. Likewise, the gross profit margin improvements helped to expand overall adjusted EBITDA margins to 12.7%, our second highest EBITDA to revenue ratio in the last five years. We are positioning S&W for improved financial performance going forward, led by new product introductions, production efficiency and diversification, and overall market share expansion."

Mr. Grewal concluded, "S&W continues to maintain its leadership position within the alfalfa seed industry. Overall, we believe that the transition of hay production regions around the world, such as what is taking place in and around Saudi Arabia, creates a tremendous opportunity for a company with strong product diversification and broad distribution such as S&W to gain market share long-term. We see a unique opportunity ahead of us and look forward to capitalizing off of it in the years ahead."

Quarterly Results

For the third quarter of fiscal year 2017, revenue was $21,012,000, compared to $25,014,000 in the third quarter of fiscal 2016.

Gross profit margins during the third quarter of fiscal 2017 were 27.6%, compared to gross profit margins of 22.0% in the third quarter of fiscal 2016. The improvement in gross profit margins was largely attributable to decreases in cost of goods sold compared to the year ago period on the Company's non-dormant varieties and favorable sales mix to higher margin dormant varieties. The Company continues to anticipate gross profit margins to improve over the course of fiscal 2017 compared to fiscal 2016.

Selling, general and administrative (SG&A) expenses were $2.7 million, and total operating expenses (excluding impairment charges) were $4.2 million, compared to the third quarter of the prior year of $2.5 million and $3.9 million respectively.

Adjusted EBITDA (see Table B) for the third quarter of fiscal 2017 was $2.7 million, compared to adjusted EBITDA of $2.7 million in the third quarter of fiscal 2016.

GAAP net income for the third quarter of fiscal 2017 was $1.3 million, or $0.07 per basic and $0.02 per diluted share, compared to GAAP net income of $0.6 million, or $0.04 per basic and diluted share, in the third quarter of fiscal 2016.

Adjusted non-GAAP net income (see Table A-1) for the third quarter of fiscal 2017, excluding various items (impairment charges, change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investment and interest expense - amortization of debt discount), was $830,000, or $0.05 per basic and diluted share. Adjusted non-GAAP net loss (see Table A-1) for the third quarter of fiscal 2016, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investment, and interest expense - amortization of debt discount) was $556,000, or $0.04 per basic and diluted share.

Full financial report