S&W Seed announces second quarter fiscal 2018 financial results

S&W Seed Company announced financial results for the second quarter of fiscal year 2018 ended December 31, 2017.

Mark Wong, president and chief executive officer of S&W Seed Company, commented, "We continue to make progress on the strategy I laid out when I took over as CEO in June 2017. During the last couple of months, our strategic analysis has identified key markets for initial expansion of our hybrid sorghum and sunflower seed programs to maximize return, while managing our risk profile. We have also advanced our focus on key trait technologies within our alfalfa, sorghum, and sunflower programs where we believe there are underserved opportunities where we can add value to farmers and end customers. Finally, we are engaging in discussions on a future direction of our stevia program that we believe will warrant the highest probable outcome for success. These strategic evaluations and decisions were made against the backdrop of continued improvements within our historical operations where gross profit margins increased by 130 basis points to 22.8%, from the second quarter of the prior year.

"During the second quarter we executed against our distribution plan with Pioneer, to which we shipped approximately $15.3 million of seed. The Saudi Arabian markets continue to remain uncertain as dairy and hay farmers determine what the new equilibrium in the market will look like. We believe the Saudi consumers will continue to demand fresh milk and forages for their livestock, which will require the importation of alfalfa hay from surrounding regions in the Middle East and Northern Africa (MENA), as well as regions around the world such as North and South America, to feed local Saudi-based livestock. Ultimately, we believe the global alfalfa markets will return to historical levels, and with our vast distribution network around the world, we believe we are positioned to maintain and grow our market share in the coming years."

Wong concluded, "I am pleased with the progress we have made in our strategy to balance the long-term focus on trait improvements and new crop introductions, such as sorghum, sunflower and stevia, with a near-term focus on becoming a more efficient and successful production, marketing and sales organization within alfalfa. We continued to strengthen the balance sheet with a successfully completed rights offering in December 2017, which, when coupled with our private placement in July 2017, has significantly improved our balance sheet position. I want to thank our existing stockholders for their continued support and look forward to driving value for them in the years to come."

Second Quarter Fiscal Year 2018 Financial Highlights and Recent Corporate Developments:

• Revenue during the second quarter of fiscal 2018 was $20.5 million compared to $24.2 million in the second quarter of the prior year;
• Gross profit margins improved by 130 basis points to 22.8%, compared to gross profit margins of 21.5% in the second quarter of fiscal 2017 as the Company continues to execute on its gross margin expansion initiatives;
• Adjusted EBITDA (see Table B) of $1.6 million for the second quarter of fiscal 2018, compared to $2.2 million in the second quarter of fiscal 2017;
• GAAP net loss (see Table A-1) of $(400,000), or $(0.02) per basic and diluted share during the second quarter of fiscal 2018, compared to GAAP net income of $1.2 million, or $0.07 per basic and $0.01 per diluted share, in the second quarter of fiscal 2017;
• Adjusted non-GAAP net loss (see Table A-1) of $(20,000), or $0.00 per basic and diluted share during the second quarter of fiscal 2018, compared to adjusted non-GAAP net income of $467,000, or $0.03 per basic and diluted share, in the second quarter of fiscal 2017; and
• Completed a fully back-stopped rights offering in December 2017 at $3.50 per share raising an aggregate of $12.25 million.

Market Outlook:

Based on information currently available to management, S&W expects to deliver results at the low end of the range of previous guidance for fiscal 2018, which was approximately $75 to 80 million in revenue and $4.0 and $5.5 million in Adjusted EBITDA.

Quarterly Results

For the second quarter of fiscal year 2018 ended December 31, 2017, S&W reported revenue of $20.5 million compared to revenue of $24.2 million in the second quarter of fiscal 2017. The decrease was largely attributable to a decrease of sales directed to the Saudi Arabia markets as a result of water regulations in Saudi Arabia, coupled with timing of shipments to the domestic market.

Gross margins during the second quarter of fiscal 2018 improved 130 basis points to 22.8% compared to gross margins of 21.5% in the second quarter of fiscal 2017. This improvement in gross profit margins was primarily due to product sales mix during the current period where we had a higher concentration of sales, as a percentage of total revenue, to DuPont; coupled with reductions of product costs of proprietary seed. This improvement in margin is consistent with management's previously discussed initiatives to drive improvements in gross margins.

Operating expenses (see Table A-1) during the second quarter of fiscal 2018 were $4.16 million, compared to $4.18 million in the second quarter of fiscal 2017.

GAAP net loss for second quarter of fiscal 2018 was $(400,000), or $(0.02) per basic and diluted share, compared to GAAP net income of $1.2 million, or $0.07 per basic and $0.01 per diluted share, in the second quarter of fiscal 2017.

Adjusted non-GAAP net loss (see Table A-1) for the second quarter of fiscal 2018, excluding certain items (transaction costs, change in derivative warrant liabilities and interest expense - amortization of debt discount), was $(20,000), or $0.00 per basic and diluted share. Adjusted non-GAAP net income (see Table A-1) for the second quarter of fiscal 2017, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, and interest expense - amortization of debt discount), was $467,000, or $0.03 per basic and diluted share.

Adjusted EBITDA (see Table B) for the second quarter of fiscal 2018 was $1.6 million, compared to adjusted EBITDA of $2.2 million for the second quarter of fiscal 2017.