S&W announces third quarter and year-to-date fiscal 2020 financial results

Date:05-15-2020

S&W Seed Company (Nasdaq: SANW) Thursday announced financial results for the three and nine months ended March 31, 2020.

"The results for the third quarter and first nine months of fiscal 2020 reflect the continued progress to diversify our product offerings and expand our distribution channels, highlighted by our recent acquisition of Pasture Genetics in Australia," commented Mark Wong, President & CEO of S&W Seed Company. "Over the last few months, we made solid progress integrating our newly acquired business and also announced a significant collaboration on the development of a new sorghum herbicide-tolerant system which we believe has the ability to bring innovation to sorghum growers through improved weed control and yields. We, like many other agricultural companies, are working through the near-term uncertainty surrounding COVID-19 and the impact it has caused to global logistics and our ability to interact with our customers during our peak selling season. We remain committed to the safety of our employees, while serving the needs of our global agricultural customers."

Financial Results

Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the third quarter of fiscal 2020 was $17.9 million, compared to Core Revenue for the third quarter of fiscal 2019 of $10.3 million, an increase of approximately 74%. Core Revenue for the first nine months of fiscal 2020 was $36.1 million, compared to Core Revenue for the first nine months of fiscal 2019 of $25.8 million, an increase of approximately 40%. Included in Core Revenue for the third quarter and nine months of fiscal 2020 was $5.5 million of revenue pertaining to a partial period contribution from the Company's acquisition of Pasture Genetics which occurred on February 24, 2020. Excluding contributions from Pasture Genetics, Core Revenue growth was 20% and 18% respectively, for the three and nine months ended March 31, 2020 versus the comparable periods of the prior year.

As announced in May 2019, S&W entered into a termination agreement and an alfalfa license agreement with Pioneer Hi-Bred International, a subsidiary of Corteva Agriscience, to replace its prior alfalfa distribution agreement with Pioneer. Due to these agreements signed with Pioneer, S&W discloses Core Revenue as a metric to track performance of its business on a go-forward basis. Other than the contributions from Pasture Genetics, the increase in Core Revenue for the nine months ended March 31, 2020 can be primarily attributed to an increase in alfalfa and sorghum sales in the United States as well as growth in Pakistan, Europe and South Africa.

Total revenue for the third quarter of fiscal 2020 was $29.1 million, compared to total revenue of $18.2 million in the third quarter of fiscal 2019. Total revenue for the first nine months of fiscal 2020 was $53.7 million, compared to total revenue for the first nine months of fiscal 2019 of $62.9 million. Under the new agreements with Pioneer, Pioneer paid S&W $45.0 million in May 2019, $16.8 million in fiscal 2020, with S&W expecting to receive $8.4 million in additional payments from September 2020 through February 2021. For the first nine months of fiscal 2020, S&W recorded product revenue from Pioneer of $17.6 million under the new agreements, which was a decrease of $19.4 million from the first nine months of fiscal 2019.

Gross margins during the third quarter of fiscal 2020 were 22.1% compared to 26.3% in the third quarter of fiscal 2019. Gross margins during the first nine months of fiscal 2020 were 21.8% compared to gross margins of 23.8% in the first nine months of fiscal 2019. The change in gross margins for the third quarter of fiscal 2020 is primarily due to a change in sales mix.

In the third quarter of fiscal 2020, adjusted operating expenses, excluding transaction costs, were $8.9 million, compared to $7.4 million in the third quarter of fiscal 2019. In the first nine months of fiscal 2020, adjusted operating expenses, excluding transaction costs, were $24.0 million, compared to $17.9 million in the first nine months of fiscal 2019. The increase in adjusted operating expenses for the third quarter and first nine months of fiscal 2020 can be attributed to additional expenses from the newly acquired Pasture Genetics operations, and additional investments in S&W's sales and marketing and product development functions.

GAAP net loss for the third quarter of fiscal 2020 was $(3.3) million, or $(0.10) per basic and diluted share, compared to GAAP net loss of $(3.3) million, or $(0.10) per basic and diluted share, in the third quarter of fiscal 2019.

GAAP net loss for the first nine months of fiscal 2020 was $(14.9) million, or $(0.45) per basic and diluted share, compared to GAAP net loss of $(6.1) million, or $(0.21) per basic and diluted share, in the first nine months of fiscal 2019.

Adjusted non-GAAP net loss for the third quarter of fiscal 2020 was $(3.0) million, or $(0.09) per basic and diluted share, which excluded transaction costs and interest expense – amortization of debt discount. Adjusted non-GAAP net loss for the third quarter of fiscal 2019, excluding transaction costs, reduction in estimated loss on sub-lease land and interest expense – amortization of debt discount, was $(3.2) million, or $(0.10) per basic and diluted share.

Adjusted non-GAAP net loss for the first nine months of fiscal 2020 was $(13.7) million, or $(0.41) per basic and diluted share, which excluded transaction costs, change in estimated value of assets held for sale, loss on extinguishment of debt, and interest expense – amortization of debt discount. Adjusted non-GAAP net loss for the first nine months of fiscal 2019, excluding transaction costs, reduction in estimated loss on sub-lease land and interest expense – amortization of debt discount, was $(4.8) million, or $(0.17) per basic and diluted share.

Adjusted EBITDA for the third quarter of fiscal 2020 was $(0.9) million, compared to adjusted EBITDA of $(1.2) million in the third quarter of fiscal 2019.

Adjusted EBITDA for the first nine months of fiscal 2020 was $(7.8) million, compared to adjusted EBITDA of $0.7 million in the first nine months of fiscal 2019.

Outlook

Due to uncertainties regarding the duration and impact of the COVID-19 pandemic, S&W is temporarily suspending its annual revenue and gross margin guidance for 2020.