S&W Seed Company announces fiscal 2017 financial results

Date:09-15-2017

S&W Seed Company today announced financial results for the fourth quarter and fiscal year ended June 30, 2017. Preliminary results for fiscal 2017 were released on July 19, 2017.

Mark Wong, president and chief executive officer of S&W Seed Company, commented, "I came into the role of president and CEO of S&W at the end of June with an acknowledgment of the near-term headwinds, but also with enthusiasm to develop S&W into one of the preeminent seed companies in the world with a portfolio of four important crops: alfalfa, sorghum, sunflower and stevia. My previous success in the seed industry, where I have sold multiple seed businesses to the likes of Monsanto and Syngenta, has been based on leveraging core assets through the integration of technology and having a more customer centric strategy. I see a tremendous opportunity to leverage S&W's existing business, through the introduction of new traits as well as robust customer support and marketing, to enhance S&W's market share going forward."

"We are in the process of working with innovative trait providers to develop certain classes of genes that we expect to be foundational to our trait development strategies going forward, including digestibility, insect resistance, disease resistance and herbicide resistance. We anticipate that trait development will be a key driver for S&W going forward in alfalfa, but also within our sorghum and sunflower programs, and other future seed crops. I believe that S&W is uniquely positioned within the seed industry to capitalize on this strategy and look forward to leveraging my experience to drive enhanced value of our varieties going forward."

Wong expanded, "In addition to trait development, we have strategies in place to become a more customer centric organization, working in conjunction with our distributors to highlight and communicate the attributes of our alfalfa, as well as our sorghum, sunflower, and stevia varieties, to our customers. Through the hiring of additional field support and agronomy personnel, our objective will be to ensure our end customers, primarily the dairy and beef industry, understand the economic benefits of feeding livestock our varieties compared to the competition. This focus on the end customer has not been emphasized by S&W in the past, but will be a key focus of ours going forward."

Wong concluded, "This is an exciting time to be in agriculture and I believe S&W has a tremendous platform to build from. I look forward to driving value for our customers, partners, and shareholders for years to come."

Fiscal Year 2017 Financial Highlights and Recent Corporate Developments:

• In line with preliminary results announced on July 19, 2017, revenue for fiscal 2017 was $75.4 million, compared to $96.0 million in fiscal 2016. The decrease was primarily due to the impact from the Saudi Arabian water regulations;
• Adjusted gross profit margins improved by 200 basis points to 21.4%, compared to adjusted gross profit margins of 19.4% in fiscal 2016 as the Company executed on its gross margin expansion initiatives;
• Adjusted EBITDA (see Table B) of $3.5 million for fiscal 2017, compared to $6.9 million in fiscal 2016;
• Adjusted non-GAAP net loss (see Table A-2) of $(1.8) million, or $(0.10) per diluted share, compared to adjusted non-GAAP net income of $0.4 million, or $0.03 per diluted share, in fiscal 2016;
• 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; and
• In September 2017, S&W was granted a patent for stevia variety SW129 for the commercial production market.

Market Outlook:

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

Annual Results

For fiscal year ended June 30, 2017, S&W reported revenue of $75.4 million, in line with preliminary results announced on July 19, 2017, compared to revenue of $96.0 million in fiscal 2016. The decrease was largely attributable to the water regulations in Saudi Arabia.

Gross margins during fiscal 2017 improved 200 basis points to 21.4% compared to adjusted gross margins of 19.4% in fiscal 2016. 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, and favorable sales mix to higher margin dormant varieties. This improvement in margin is consistent with management's previously discussed initiatives to drive improvements in gross margins.

Adjusted operating expenses (see Table A-2) during fiscal 2017 were $17.3 million, compared to $16.1 million in fiscal 2016. During the fourth quarter of fiscal 2017, the Company recorded a valuation allowance of $9.6 million against its deferred tax assets. This resulted in GAAP income tax expense of $8.2 million for the fourth quarter of fiscal 2017.

GAAP net loss for fiscal 2017 was $(11.8) million, or $(0.67) per basic and diluted share, compared to GAAP net income of $0.4 million, or $0.02 per basic and diluted share, in fiscal 2016.

Adjusted non-GAAP net loss (see Table A-2) for fiscal 2017, excluding various items (separation charges, reserve for uncollectable sub-lease income, impairment charges, change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investments, anticipated loss on sub-lease land, interest expense - amortization of debt discount, and valuation allowance for deferred tax assets), was $(1.8) million, or $(0.10) per basic and diluted share. Adjusted non-GAAP net income (see Table A-2) for fiscal 2016, excluding various items (non-recurring cost of revenue costs, transaction costs, change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investment, gain on sale of marketable securities, and interest expense - amortization of debt discount), was $0.4 million, or $0.03 per basic and diluted share.

Adjusted EBITDA (see Table B) for fiscal 2017 was $3.5 million, compared to adjusted EBITDA of $6.9 million in fiscal 2016. The decrease in revenue primarily in Saudi Arabia, partially offset by gross margin expansion, accounts for $2.5 million of the $3.4 million decrease in Adjusted EBITDA over the prior year; with the remaining decrease attributed to additional investment in research and development programs associated with the Company's new product lines; and selling, general and administrative expenses to support the Company's strategic initiatives.