S&W announces first quarter fiscal 2024 financial results

S&W Seed Company (Nasdaq: SANW) announced financial results for the three months ended September 30, 2023.

Financial Highlights

• Revenue for the first quarter of fiscal 2024 was $16.4 million, a 17.3% decrease compared to the first quarter of fiscal 2023. Double TeamTM sorghum revenue was $0.5 million in the first quarter of fiscal 2024 compared to $0.0 million in the first quarter of fiscal 2023.

• GAAP gross profit margin for the first quarter of fiscal 2024 was 30.5%, an improvement from 22.7% in the first quarter of fiscal 2023.

• Operating expenses were $7.9 million for the first quarter of fiscal 2024, which is consistent with operating expenses for the first quarter of fiscal 2023.

• GAAP net loss was ($6.0) million, or ($0.14) per basic and diluted share, for the first quarter of fiscal 2024 compared to a GAAP net loss of ($4.5) million, or ($0.11) per basic and diluted share, for the first quarter of fiscal 2023.

• Adjusted EBITDA improved by $0.2 million to ($1.4) million for the first quarter of fiscal 2024 compared to ($1.6) million for the first quarter of fiscal 2023.

Recent Highlights

• In July 2023, seed industry veteran Mark Herrmann was appointed as Chief Executive Officer, or CEO, following the planned retirement of its previous CEO, Mark Wong, who remains on the Board.

Management Discussion

"We have made good progress during the first quarter instituting key operational initiatives to drive the business towards profitability in the near-term, including improved life cycle management to reduce obsolescence costs; the rationalization of certain low margin forage product lines and seed treatments; suspension of our stevia development program; and an overall seed manufacturing cost reduction plan," commented S&W's recently appointed CEO, Mark Herrmann. "These initiatives, along with early Double Team sales and higher margin alfalfa sales, resulted in a gross profit margin of 30.5%, which was a 780-basis point improvement and a $0.2 million improvement to our adjusted EBITDA compared to the year ago first quarter. With strong progress made during what is historically one of our seasonally smaller quarters consisting primarily of forage shipments, I believe the stage is well set for continued improvement throughout the year, especially during the later quarters of fiscal 2024 when we typically ramp up most of our shipments of our high margin Double Team sorghum solution."

"Beyond our focus on operational excellence to align S&W with best-in-class seed industry standards, we are making continued developmental progress to build off the momentum of our first trait technology solution – Double Team Grain Sorghum. We are planning to introduce our Double Team Forage Sorghum solution and Prussic Acid Free Trait for sorghum in fiscal 2024, with full commercial launch slated for the following year. Prussic Acid Free will initially be introduced as a solo trait and then shortly thereafter it is expected to be provided as a stacked trait with Double Team. We are also developing a second-generation post grass herbicide trait which we plan to launch in 2025 and are in discovery stage for an insect tolerance/resistance trait, and broad-spectrum herbicide trait as well. We are clearly becoming a key technology provider in sorghum, the 5th largest cereal crop globally, that can be used as a substitute for many grains on the market today due to its key nutrient profile and ability to handle higher temperatures and drier climates better than many other crops."

"We look forward to making continued commercial and development progress throughout fiscal 2024 with a laser focus on operating S&W with best-in-class practices, from top to bottom," Herrmann concluded.

International Operations Update

In May 2023, S&W announced that its Board is evaluating potential avenues to unlock what the Company sees as unrecognized value in its international operations, which are headquartered within the Company's Australian subsidiary. S&W has retained Bell Potter Securities Limited as its financial advisor and to assist the Board in its evaluation. As part of the process, the Board expects to review a full range of potential alternatives, which may include an IPO/Australian public listing of S&W International, or a merger, reverse merger or other business combination or strategic transaction involving the Company's international operations – any of which would be expected to help improve strategic focus, enhance financial transparency, and better enable stakeholders to value separate components of the Company's businesses independently.

The Company cautions that there can be no assurance the Board's evaluation will result in a completed transaction, or any assurance as to its outcome or timing. It does not intend to disclose any developments related to the process unless and until S&W executes a definitive agreement for a particular transaction, or the Board otherwise determines that further disclosure is appropriate or required.

Financial Results

Total revenue for the first quarter of fiscal 2024 was $16.4 million compared to total revenue for the first quarter of fiscal 2023 of $19.9 million. The $3.5 million year-over-year decrease in revenue was primarily attributable to a $2.9 million decrease in sales to the Middle East and North Africa region due to management's decision to not discount non-dormant alfalfa as cheaper European seed disrupted the market, a $1.6 million decrease in Mexico sales of non-dormant alfalfa due to wet conditions causing missed plantings, a $0.7 million decrease in Asia sales due to COVID using inventory carryover into fiscal 2024 leading to lost sales, and a $0.4 million decrease in Australia sorghum sales due to dry planting conditions. This decrease was offset by a $1.0 million increase in South Africa sorghum sales from the addition of a new customer, a $0.7 million increase in Alfalfa sales delivered in the first quarter of fiscal 2024 that historically would have been expected to occur in the second quarter, and a $0.5 million increase in Double Team sorghum revenue.

GAAP gross profit margin for the first quarter of fiscal 2024 was 30.5% compared to GAAP gross profit margin for the first quarter of fiscal 2023 of 22.7%. The improvement in GAAP gross profit margin was primarily driven by improved non-traited sorghum margins due to better inventory life-cycle management, improved non-dormant alfalfa margins due to pricing in the global market, and increased sales and improved margins of our high margin Double Team traited sorghum.

GAAP operating expenses for the first quarter of fiscal 2024 were $7.9 million, which was consistent with the first quarter of fiscal 2023. While the Company saw a $0.4 million improvement from research and development expenses and a $0.3 million improvement in depreciation and amortization, this was offset by a $0.7 million increase in selling, general, and administrative expenses.

Adjusted operating expenses for the first quarter of fiscal 2024 were $6.7 million compared to $6.5 million in the first quarter of fiscal 2023. The $0.2 million increase in adjusted operating expenses for the first quarter of fiscal 2024 was attributed to a $0.6 million increase in selling, general, and administrative expenses after taking out non-recurring transaction costs, partially offset by a $0.4 million decrease in research and development expenses.

GAAP net loss for the first quarter of fiscal 2024 was ($6.0) million, or ($0.14) per basic and diluted share, compared to GAAP net loss of ($4.5) million, or $(0.11) per basic and diluted share, for the first quarter of fiscal 2023.

Adjusted net loss for the first quarter of fiscal 2024 was ($4.7) million, or ($0.11) per basic and diluted share, excluding interest expense - amortization of debt discount, non-recurring transaction costs, dividends accrued for participating securities and accretion, and equity in loss of equity method investee (Vision Bioenergy), net of tax. Adjusted net loss for the first quarter of fiscal 2023, excluding interest expense - amortization of debt discount, non-recurring transaction costs, and dividends accrued for participating securities and accretion was ($4.3) million, or ($0.10) per basic and diluted share.

Adjusted EBITDA for the first quarter of fiscal 2024 was ($1.4) million compared to adjusted EBITDA for the first quarter of fiscal 2023 of ($1.6) million.

Fiscal 2024 Guidance

S&W expects fiscal 2024 revenue to be within a range of $76 to $82 million, representing an expected increase of 3% to 12% compared to fiscal 2023 revenue of $73.5 million. Revenue from the Company's Double Team sorghum solutions is expected to be $11.5 to $14.0 million, representing an increase of 77% to 115% compared to fiscal 2023. Adjusted EBITDA is expected to be in the range of $(7.5) million to $(4.0) million for fiscal 2024, compared to adjusted EBITDA of $(9.3) million in fiscal 2023.

As the partnership with Shell is accounted for as an equity method investment, it is not expected to have a material impact on S&W's full-year financial results for fiscal 2024.