S&W Seed Company announces second quarter fiscal 2024 financial results

S&W Seed Company (Nasdaq: SANW) Wednesday announced financial results for the three months ended December 31, 2023.

Financial Highlights

• Revenue for the second quarter of fiscal 2024 was $10.9 million, a 16.0% decrease compared to the second quarter of fiscal 2023. Double TeamTM sorghum revenue was $4.0 million in the second quarter of fiscal 2024 compared to $1.2 million in the second quarter of fiscal 2023.

• Gross profit margin for the second quarter of fiscal 2024 was 30.3%, an improvement from 21.3% in the second quarter of fiscal 2023.

• GAAP operating expenses were $7.9 million for the second quarter of fiscal 2024 compared to GAAP operating expenses for the second quarter of fiscal 2023 of $9.0 million.

• GAAP net loss was ($6.5) million, or ($0.15) per basic and diluted share, for the second quarter of fiscal 2024 compared to a GAAP net loss of ($6.0) million, or ($0.14) per basic and diluted share, for the second quarter of fiscal 2023.

• Adjusted EBITDA (see Table B) improved to ($3.2) million for the second quarter of fiscal 2024 compared to ($4.6) million for the second quarter of fiscal 2023.

• Received $6.0 million payment from Equilon Enterprises LLC (dba Shell Oil Products US) in February 2024 as additional consideration related to the formation of biofuel production partnership, Vision Bioenergy Oilseeds LLC, in February 2023, and received $1.0 million payment from Trigall Genetics S.A. in January 2024 as additional consideration related to the sale of 80% interest in Trigall Australia Pty Ltd., a wheat development partnership, in December 2022.

Management Discussion

"We continued to successfully implement key operational initiatives to drive efficiencies across the global organization. These initiatives, coupled with our higher mix of Double Team sales, provided a gross margin improvement to 30.3% this quarter compared to 21.3% in the second quarter one year ago, and a $1.1 million reduction of operating expenses," commented S&W Seed Company's CEO, Mark Herrmann. "A key driver to the gross margin improvement has been the successful adoption of our first trait technology solution – Double Team Grain Sorghum. Double Team sales increased 233% to $4.0 million during the second quarter this year compared to the second quarter one year ago as we continued to see positive farmer satisfaction, demand, and adoption of the high margin trait technology. We are looking to build upon the success of Double Team Grain Sorghum with the introduction of a Double Team Forage Sorghum solution and Prussic Acid Free Trait for sorghum. Initial Double Team Forage Sorghum sales are expected in fiscal 2024, and a pilot launch of our Prussic Acid Free Trait for sorghum is being planted this year. We feel we are clearly becoming a leading technology provider in sorghum, a key global crop, 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."

"While we are achieving strong adoption in our high margin sorghum trait technology solutions, we are closely monitoring the dynamics from the expanding conflicts in the Middle East North Africa, or MENA, region on our international alfalfa product operations. The war in Ukraine, the Sudan Civil War, and expanding geopolitical disruptions have caused the transition of many alfalfa growers in the MENA region to plant wheat this upcoming season, and have caused disruptions to normal farming operations and seed distribution channels. We have already implemented a series of cost saving initiatives within our international operations, as well as production optimization initiatives, to mitigate any potential revenue impact. We will remain proactive to optimize the cost structure of the entire organization to support our near-term goal of profitability."

"We believe we are well positioned within our U.S. sorghum operations to continue the momentum we have achieved during the first half of fiscal 2024. Double Team appears to have proven itself to be a truly special and unique product as the only product available to control grassy weeds in sorghum that rob water, nutrients and ultimately yield from the crop. Since its limited launch in 2021 - and broader commercial launch in calendar year 2022 - Double Team Grain Sorghum accounted for what we estimate to be 6% of all grain sorghum acres in the U.S. spring 2023 planting and we believe it will grow to more than 10% for planting 2024. This is not only a tremendous achievement by our sales team, but also highlights the value and demand for innovation in this critical crop, which has been void of any innovation to this point by the large agricultural companies."

CFO Update

The Company's board of directors appointed Vanessa Baughman as the Company's full-time Chief Financial Officer effective February 12, 2024. Ms. Baughman has been serving as the Company's Interim Chief Financial Officer and corporate Secretary since May 2023. Prior to joining S&W, Ms. Baughman served as Chief Financial Officer and Vice President of Finance of AgReliant Genetics, LLC, the third largest North American seed corn company, headquartered in Westfield, Indiana, from January 2019 to March 2023.

Financial Results

Total revenue for the second quarter of fiscal 2024 was $10.9 million compared to total revenue for the second quarter of fiscal 2023 of $12.9 million. The quarter-over-quarter decrease in revenue was primarily attributable to a $3.5 million decrease in MENA region sales caused by management's decision to not discount non-dormant alfalfa as cheaper European seed disrupted the market and government incentives to produce wheat in Saudi Arabia reduced demand, a $1.1 million decrease in Australia pasture products and non-dormant alfalfa, and a $0.3 million decrease in Asia sales due to inventory carryover into fiscal 2024 leading to lost sales. This decrease was offset by a $2.8 million increase in Double Team traited sorghum revenue.

Gross profit margin for the second quarter of fiscal 2024 was 30.3% compared to gross profit margin for the second quarter of fiscal 2023 of 21.3%. The improvement in gross profit margin was primarily driven by increased sales of the Company's high margin Double Team traited sorghum and a more favorable product mix in the Australian domestic market. This increase was partially offset by decreased market prices in the MENA region and increased sales of the Company's lower margin grain sorghum in Mexico.

GAAP operating expenses for the second quarter of fiscal 2024 were $7.9 million compared to GAAP operating expenses for the second quarter of fiscal 2023 of $9.0 million. The Company saw a $0.4 million improvement from research and development expenses, a $0.5 million improvement in depreciation and amortization, and a $0.2 million improvement in selling, general, and administrative expenses.

Adjusted operating expenses (see Table A1) for the second quarter of fiscal 2024 were $6.7 million compared to $7.6 million in the second quarter of fiscal 2023. The $0.9 million decrease in adjusted operating expenses for the second quarter of fiscal 2024 was attributed to a $0.5 million decrease in research and development expenses and a $0.4 million decrease in selling, general, and administrative expenses after taking out non-recurring transaction costs.

GAAP net loss for the second quarter of fiscal 2024 was ($6.5) million, or ($0.15) per basic and diluted share, compared to GAAP net loss of ($6.0) million, or $(0.14) per basic and diluted share, for the second quarter of fiscal 2023.

Adjusted net loss (see Table A2) for the second quarter of fiscal 2024 was ($5.4) million, or ($0.13) 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 second quarter of fiscal 2023 was ($5.3) million, or ($0.13) per basic and diluted share, excluding interest expense - amortization of debt discount, non-recurring transaction costs, and dividends accrued for participating securities and accretion.

Adjusted EBITDA (see Table B) for the second quarter of fiscal 2024 was ($3.2) million compared to adjusted EBITDA for the second quarter of fiscal 2023 of ($4.6) million.

Fiscal 2024 Guidance

Due to the dynamics in the MENA region potentially impacting international alfalfa operations, S&W expects fiscal 2024 revenue to be on the lower end of the previously communicated range of $76 to $82 million. The Company continues to expect revenue from the Company's Double Team sorghum solutions to be $11.5 to $14.0 million, representing an increase of 77% to 115% compared to fiscal 2023. The Company continues to expect adjusted EBITDA 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.