S&W Seed Company sales down 9.3% in Q2 2019

S&W Seed Company (Nasdaq: SANW) today announced financial results for the second quarter of fiscal 2019 ended December 31, 2018. 

 

Mark Wong, President & CEO of S&W Seed Company, commented, "We believe S&W's transformation is firmly underway to becoming a multi-crop, middle-market agricultural company, with a focus on developing higher value crops through technological advances and proprietary breeding. While we only recently acquired the sorghum assets of Chromatin, our conviction in the synergies that we believed would be available is growing each day, including our belief that we can build upon a U.S. farmer-dealer network, leverage our international distribution channels, drive efficiencies in the production process, and accelerate development of next generation trait technologies. These important factors were key components behind the guidance we previously provided for revenue growth and positive EBITDA contribution from the acquisition in fiscal 2020. Overall, we believe we are delivering strong execution on the integration of the Chromatin acquisition."

 

"We feel that further evidence of the traction we are seeing in the turnaround of our business is our return to organic revenue growth during the second quarter and first half of fiscal 2019. On an equivalent comparable basis (excluding the impact of ASC 606 and excluding any contribution from the Chromatin acquisition), revenues increased organically by 14% during the second quarter of fiscal 2019, compared to the second quarter of fiscal 2018, and 3% during the first half of fiscal 2019, compared to the first half of fiscal 2018. Our efforts to grow sales in the United States and Australia with dedicated sales personnel, coupled with small improvements in the Saudi Arabia market, give us continued optimism that our customer centric strategies are yielding dividends. We believe this renewed sales focus, coupled with a realignment of our organization across geographic lines as opposed to products lines, has the ability to lead to continued improvement in the future."

 

Mr. Wong concluded, "I am enthusiastic of the opportunity we have at S&W to continue our evolution. The strategies we have implemented from an operational and strategic perspective are proceeding according to plan. The further integration of the Chromatin assets into S&W should only accelerate in future periods, which should in turn create a larger and more diverse platform from which to operate. I thank our shareholders for their continued support and look forward to the future with optimism."

 

(Note to readers: As S&W adopted the requirements of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606) as of July 1, 2018, using the modified retrospective method, there is a lack of comparability of current financial results to prior fiscal periods.)  

 

For the second quarter of fiscal 2019 ended December 31, 2018, S&W reported revenue of $18.6 million, compared to revenue of $20.5 million in the second quarter of fiscal 2018. Of the $18.6 million of revenue in the second quarter of fiscal 2019, S&W recognized approximately $1.5 million from its recent sorghum acquisition which occurred on October 25, 2018. The decrease in revenue from the prior year is primarily related to the timing of revenue recognition pursuant to its adoption ASC 606 effective July 1, 2018, which accelerated revenue from its agreement with Pioneer to the first quarter of fiscal 2019 as opposed to the second quarter of fiscal 2019, offset by growth in Australia and other international markets, including MENA. Had the Company reported under the old revenue recognition standard ASC 605, revenue would have been $24.9 million in the second quarter of fiscal 2019. Excluding the impact of the Chromatin acquisition and under the old revenue recognition standard, revenues for the second quarter of fiscal 2019 would have been $23.4 million, or a 14% organic improvement from the year ago period driven by growth in Australia and other international markets, including MENA.

 

For the first half of fiscal 2019, S&W reported revenue of $44.7 million compared to $31.2 million for the first half of fiscal 2018. The increase in revenues for the six month period is primarily due to the acceleration of revenue recognition pursuant to the Company’s adoption of ASC 606 effective July 1, 2018, as well as contributions from its acquisition of Chromatin, which occurred on October 25, 2018, and growth in Australia and other international markets, including MENA. Had the Company reported under the old revenue recognition standard ASC 605, revenue would have been $33.7 million for the first half of fiscal 2019. Excluding the impact of the Chromatin acquisition and operating under the old revenue recognition standard ASC 605, revenues for the first half of fiscal 2019 would have been $32.1 million, or a 3% organic improvement from the year ago period driven by growth contributions from Australia and MENA.

 

Gross margins during the second quarter of fiscal 2019 were 25.2% compared to gross margins of 22.8% in the second quarter of fiscal 2018. Gross margins during the first half of fiscal 2019 were 22.7% compared to gross margins of 22.4% in the second half of fiscal 2018. The increase in gross profit margins was primarily due to product sales mix during the current periods where the Company had a higher concentration of higher margin products including hybrids and dormant alfalfa seed.

 

Adjusted operating expenses, excluding transaction related expenses (see Table A1), in the second quarter of fiscal 2019 was $6.2 million compared to $4.2 million in the second quarter of fiscal 2018. Adjusted operating expenses, excluding transaction related expenses (see Table A2), in the first half of fiscal 2019 was $10.5 million compared to $8.6 million in the first half of fiscal 2018. The increase in operating expenses for the second quarter and first half of fiscal 2019 can be attributed to approximately $1.0 million of additional expenses from the newly acquired sorghum operations, coupled with additional investments in our sales and marketing and product development functions.

 

GAAP net loss for the second quarter of fiscal 2019 was $(2.8) million, or $(0.09) per basic and diluted share, compared to GAAP net loss of $(0.4) million, or $(0.02) per basic and diluted share, in the second quarter of fiscal 2018. GAAP net loss for the first half of fiscal 2019 was $(2.7) million, or $(0.10) per basic and diluted share, compared to GAAP net loss of $(2.2) million, or $(0.11) per basic and diluted share, in the first half of fiscal 2018.

 

Adjusted non-GAAP net loss (see Table A1) for the second quarter of fiscal 2019, excluding various items (transaction costs and interest expense – amortization of debt discount), was $(2.1) million, or $(0.07) per basic and diluted share. Adjusted non-GAAP net loss (see Table A1) for the second quarter of fiscal 2018, excluding various items (transactions costs, change in derivative warrant liabilities, interest expense – amortization of debt discount) was $(20,000), or $(0.00)per basic and diluted share. Adjusted non-GAAP net loss (see Table A2) for the first half of fiscal 2019, excluding various items (transaction costs and interest expense – amortization of debt discount), was $(1.6) million, or $(0.06) per basic and diluted share. Adjusted non-GAAP net loss (see Table A2) for the first half of fiscal 2018, excluding various items (transactions costs, change in derivative warrant liabilities, interest expense – amortization of debt discount) was $(2.5) million, or $(0.12) per basic and diluted share.

 

Adjusted EBITDA (see Table B) for the second quarter of fiscal 2019 was $(249,000), compared to adjusted EBITDA of $1.6 million in the second quarter of fiscal 2018. Adjusted EBITDA (see Table B) for the first half of fiscal 2019 was $1.9 million, compared to adjusted EBITDA of $617,000 in the first half of fiscal 2018.

 

 

In December 2018, to support future growth initiatives, including its recent acquisition of the Chromatin sorghum assets, S&W Seed Company expanded the size of its working capital facility with KeyBank to $45 million and extended the maturity date to December 2020.