S&W Seed Company sales down 15% in FY2018

Date:09-21-2018

September 20, S&W Seed Company announced financial results for the fourth quarter and fiscal year ended June 30, 2018.

Mark Wong, president and chief executive officer of S&W Seed Company, commented, "Over the past year, the management team and S&W's board have been aligned on a comprehensive strategic plan to become a more diversified middle market agricultural company. Our focus is to evolve beyond our dependence on our alfalfa seed operations and certain geographical markets which carry higher political, regulatory, and economic risks, and at the same time develop and acquire higher-value trait technologies."

"In particular, we have made significant advancements with our Calyxt partnership where we recently announced the successful transfer of our proprietary alfalfa seed and plants from the research and development facility at Calyxt to S&W for field evaluation and testing. This marked a significant milestone in the collaboration between the two companies. We have expanded our sales and marketing capabilities with the appointment of key industry veterans that create the bridge that connects our R&D to our sales teams and ultimately our customers. At the same time, we have created a joint venture with AGT Foods Africa (Pty) Ltd, and further integrated our acquired NexSteppe sorghum germplasm, that will increase our sorghum presence in key regions. This focus on commercialization efforts matches a simultaneous focus on research and development and advancement of our stevia efforts where we expanded our existing agreement with an international consumer products company to perform breeding and targeting of novel stevia traits. Overall, we are pleased with the progress made to achieve our goals."

"During fiscal year 2018, Saudi Arabian water regulations continued to impact revenue and profitability. However, alfalfa seed revenues in other regions have remained relatively flat over the past couple of years, despite difficult market environments. We have instituted a series of initiatives within our alfalfa operations to drive continued focus in key geographies, while at the same time investing in trait technologies that we believe will help grow market share in the future."

Mr. Wong concluded, "Our mantra during the year has been 'Evolving Beyond.' I am pleased with our progress over the last year to better position us for success by advancing key alfalfa trait development, expanding our sorghum operations, better alignment of our sales and marketing strategies, progressing our stevia program, and increasing the value we obtain for each pound of seed sold. I look forward to continued progress in fiscal 2019."

Annual Results

For the fiscal year ended June 30, 2018, S&W reported revenue of $64.1 million, compared to revenue of $75.4 million in fiscal 2017. The decrease was largely attributable to decreased shipments to Saudi Arabia as a result of water use regulations in the country. For fiscal 2018, revenue from Saudi Arabian destinations was $1.5 million compared to $12.1 million in fiscal 2017, and $26.0 million in fiscal 2016. Revenue in the United States, S&W's largest market, was $41.7 million in fiscal 2018 compared to $41.5 million in fiscal 2017.

Gross margins during fiscal 2018 improved 160 basis points to 23.0% compared to gross margins of 21.4% in fiscal 2017. This improvement in gross margins was primarily due to product sales mix during the year where the Company had a higher concentration of sales, as a percentage of total revenue, to Pioneer; coupled with reductions of production costs of proprietary seed.

Total operating expenses in fiscal 2018 were $17.7 million compared to $18.5 million in fiscal 2017. Adjusted operating expenses (see Table A-2*) during fiscal 2018 were $17.7 million, compared to $17.3 million in fiscal 2017. On an adjusted basis, SG&A decreased by $520,000, while R&D increased by $856,000 over the prior year. S&W continues to focus on operating efficiencies while maintaining an investment in developing next generation products that are intended to drive growth in revenues and gross profit margins. Included in fiscal 2018 operating expenses was a charge of $66,000 related to transactions expenses, whereas included in fiscal 2017 operating expenses was a charge of $837,000 related to employee separation costs, a $319,000 impairment charge related to the carrying value of certain stand establishment assets and a $60,000 reserve for uncollectable sub-lease income.

GAAP net loss for fiscal 2018 was $(4.7) million, or $(0.21) per basic and diluted share, compared to GAAP net loss of $(11.8) million, or $(0.67) per basic and diluted share, in fiscal 2017. In fiscal 2017, the Company recorded a valuation allowance of $9.6 million against its deferred tax assets which resulted in GAAP income tax expense of $8.2 million for the fourth quarter of fiscal 2017.

Adjusted non-GAAP net loss (see Table A-2*) for fiscal 2018, excluding various items (transaction costs, change in derivative warrant liabilities, and interest expense – amortization of debt discount), was $(4.9) million, or $(0.22) per basic and diluted share. 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 EBITDA (see Table B*) for fiscal 2018 was $1.3 million, compared to adjusted EBITDA of $3.5 million in fiscal 2017.

* Detailed table information, please check the original S&W Fiscal 2018 Financial Results