S&W Seed sales down 12% in Q1 2018

Mark Wong, president and chief executive officer of S&W Seed Company, commented, "I believe that S&W remains one of the unique middle market agricultural companies in the world. We are focused on evolving beyond our historical strategy by leveraging our strong asset base with the addition of new trait technologies for our current crop portfolio and expansion into complementary crops. Our recent announcement with Calyxt was a significant milestone as the first ever gene-edited alfalfa product to receive the non-regulated (non-GMO) distinction from the USDA. This potentially opens the door to bring high margin gene-edited products to many parts of the world where GMO is prohibited."

"During the first quarter, we saw a continuation of the trends that highlighted fiscal 2017 – improved gross margins, offset by weakness in Saudi Arabia caused by the recent change in water regulations. The 590-basis point improvement in gross margins is especially gratifying given our product mix. As we move towards the remainder of the year and product mix shifts to our higher margin varieties, we expect this to become more pronounced."

Wong concluded, "Our strategy moving forward will be to balance the long-term focus on trait improvements and new crop introductions, such as sorghum, sunflower and stevia, with a near-term focus on becoming a more efficient and successful production, marketing and sales organization. To aid in executing on this strategy, we have significantly strengthened the balance sheet throughout and subsequent to the end of the quarter through the support of our largest shareholders. Having taken over the reigns as CEO just a few months ago, my belief in the opportunities ahead of us to enhance shareholder value grows each and every day."

First Quarter Fiscal Year 2018 Financial Highlights and Recent Corporate Developments:

• Revenue during the first quarter of fiscal 2018 was $10.7 million compared to $12.2 million in the first quarter of the prior year;
• Gross profit margins improved by 590 basis points to 21.8%, compared to gross profit margins of 15.9% in the first quarter of fiscal 2017 as the Company executed on its gross margin expansion initiatives;
• GAAP net loss (see Table A) of $(1.8) million, or $(0.09) per basic and diluted share during the first quarter of fiscal 2018, compared to GAAP net loss of $(3.2) million, or $(0.19) per basic and diluted share, in the first quarter of fiscal 2017;
• Adjusted EBITDA (see Table B) of $(967,000) for the first quarter of fiscal 2018, compared to $(971,000) in the first quarter fiscal 2017;
• In July 2017, S&W closed a $10.7 million private placement at $4.00 per share of common stock with the company's two largest shareholders, and a new investor;
• In September 2017, S&W closed on a two-year $35 million working capital line of credit with KeyBank to support its plans for increased production and growth;
• In October 2017, announced plans for a fully back-stopped rights offering at $3.50 per share to raise an aggregate of $12.25 million; and
• In October 2017, new CEO Mark Wong purchased 75,000 shares at $3.50 per share in private placement.

Market Outlook:

Based on information currently available to management, the Company reiterates previous expectations of revenue for fiscal 2018 to be approximately $75 to $80 million and adjusted EBITDA for fiscal 2018 to range between $4.0 and $5.5 million.

Quarterly Results

For the first quarter of fiscal year 2018 ended September 30, 2017, S&W reported revenue of $10.7 million compared to revenue of $12.2 million in the first quarter of fiscal 2017. The decrease was largely attributable to a decrease of sales directed to the Saudi Arabia markets as a result of water regulations in Saudi Arabia. This decrease was partially offset by an increase in sales to the domestic market and Argentina.

Gross margins during the first quarter of fiscal 2018 improved 590 basis points to 21.8% compared to gross margins of 15.9% in the first quarter of fiscal 2017. The improvement in gross profit margins was largely attributable to decreases in cost of goods sold compared to the prior year for S&W's non-dormant varieties. This improvement in margin is consistent with management's previously discussed initiatives to drive improvements in gross margins.

Operating expenses (see Table A*) during the first quarter of fiscal 2018 were $4.5 million, compared to $4.0 million in the first quarter of fiscal 2017.

GAAP net loss for the first quarter of fiscal 2018 was $(1.8) million, or $(0.09) per basic and diluted share, compared to GAAP net loss of $(3.2) million, or $(0.19) per basic and diluted share, in the first quarter of fiscal 2017.

Adjusted non-GAAP net loss (see Table A*) for the first quarter of fiscal 2018, excluding certain items (transaction costs, change in derivative warrant liabilities and interest expense - amortization of debt discount), was $(2.5) million, or $(0.13) per basic and diluted share. Adjusted non-GAAP net loss (see Table A*) for the first quarter of fiscal 2017, 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 $(1.6) million, or $(0.09) per basic and diluted share.

Adjusted EBITDA (see Table B*) for the first quarter of fiscal 2018 was $(967,000), compared to adjusted EBITDA of $(971,000) for the first quarter of fiscal 2017.

*For Table A, Table B, please download the original S&W Seed finical report