S&W Announces Second Quarter Fiscal 2023 Financial Results
S&W Seed Company (Nasdaq: SANW) reported its Q2 2023 financial results, showing a revenue increase of 2% to $12.9 million, driven by U.S. sorghum and international alfalfa sales. The GAAP gross profit margin improved significantly to 21.3%, up 820 basis points year-over-year. Operating expenses decreased by $1.6 million to $9.0 million. The net loss narrowed to $(6.0) million, or $(0.14) per share, from $(9.8) million, or $(0.25) per share, a year earlier. S&W reiterated its FY 2023 revenue guidance of $80 to $92 million and adjusted EBITDA guidance of $(7.0) million to $(2.0) million. Additionally, S&W announced a joint venture with Shell for developing sustainable biofuel feedstocks.
- Revenue increased 2% to $12.9 million compared to Q2 2022.
- GAAP gross profit margin improved to 21.3%, an 820 basis point increase.
- Operating expenses reduced by $1.6 million, enhancing cost structure efficiency.
- Net loss narrowed to $(6.0) million, a significant improvement from previous year.
- Joint venture with Shell expected to enhance future revenue and operational focus.
- Net loss still substantial at $(6.0) million, indicating ongoing challenges in profitability.
Q2 2023 Financial and Recent Highlights
- Revenue for the second quarter of fiscal 2023 was
$12.9 million 2% compared to the second quarter of fiscal 2022, driven primarily by the Company'sU.S. sorghum and international alfalfa sales. - GAAP gross profit margin for the second quarter of fiscal 2023 was
21.3% , an improvement of 820 basis points compared to13.1% in the second quarter of 2022, reflective of the Company's execution on its gross margin expansion initiatives. - Operating expenses decreased by
$1.6 million $9.0 million - GAAP net loss was
$(6.0) million $(0.14) $(9.8) million $(0.25) - Adjusted EBITDA (see Table B) improved by
$1.9 million $(4.6) million - S&W is reiterating its fiscal year 2023 revenue and adjusted EBITDA guidance.
- S&W entered into a joint venture with Shell to develop and produce sustainable biofuel feedstocks.
Shell Joint Venture
On
The JV intends to develop Camelina ("Camelina sativa") and other oilseed species from which oil and meal can be extracted for future processing into animal feed, biofuels, and other bioproducts. The JV expects to carry out initial grain production in late calendar year 2023.
S&W contributed its expertise in seed research, technology, production, and processing to the JV, including its seed processing and research facilities in
At closing, Shell contributed
Management Discussion
"During the second quarter of fiscal 2023, we maintained our diligent focus on commercial execution to achieve our goals of driving growth, improving gross margins and reducing operating expenses. We saw strong growth in Double Team sorghum revenue due to early season sales in the
"We believe our agreement with Shell to establish the JV is transformational for S&W. By partnering with a world leader like Shell and leveraging our seed, processing and technological capabilities within Camelina, we believe we have an opportunity to be at the forefront of the evolution taking place to produce sustainable low carbon energy solutions. This JV adds a new center of value for S&W and has the ability to enhance the financial outlook for the company going forward."
"As we enter the back half of our fiscal year, we are focused on advancing our biofuel JV, with initial grain production expected in late calendar 2023, and developing the key centers of value we outlined previously. Further, we and Trigall Genetics entered into the wheat breeding joint venture for
Financial Results
Total revenue for the second quarter of fiscal 2023 was
GAAP gross margins for the second quarter of fiscal 2023 were
GAAP operating expenses for the second quarter of fiscal 2023 were
GAAP net loss for the second quarter of fiscal 2023 was
Adjusted net loss (see Table A2) for the second quarter of fiscal 2023 was
Adjusted EBITDA (see Table B) for the second quarter of fiscal 2023 was
Fiscal 2023 Guidance
S&W is reiterating its previously issued guidance for fiscal 2023 revenue and adjusted EBITDA. The Company expects fiscal 2023 revenue to be within a range of
As the JV with Shell is expected to be accounted for as an equity method investment, the JV with Shell is not expected to have a material impact on S&W's full-year financial results for fiscal 2023.
Conference Call
Non-GAAP Financial Measures
In addition to financial results reported in accordance with accounting principles generally accepted in
For reconciliations of historical non-GAAP financial measures to the most comparable financial measures under GAAP, see Tables A1, A2 and B accompanying this release. We have not reconciled our guidance for adjusted EBITDA for fiscal 2023 to net income (loss) because the reconciling line items that impact net income (loss), including interest expense, non-cash stock-based compensation, and foreign currency (gain) loss, among others, are uncertain or out of our control and cannot be reasonably predicted. The actual amount of these items during fiscal 2023 will have a significant impact on net income (loss). Accordingly, a reconciliation of this non-GAAP measure to its most directly comparable GAAP measure is not available without unreasonable efforts.
In order to calculate these non-GAAP financial measures, we make targeted adjustments to certain GAAP financial line items found on our Consolidated Statement of Operations, backing out non-recurring or unique items or items that we believe otherwise distort the underlying results and trends of the ongoing business. We have excluded the following items from one or more of our non-GAAP financial measures for the periods presented:
Selling, general and administrative expenses; operating expenses. We exclude from operating expenses a portion of SG&A expense related to interest expense, interest expense – amortization of debt discount, benefit from income taxes, depreciation and amortization, and non-recurring transaction costs related to acquisitions. Acquisition-related costs include non-recurring transaction fees, due diligence costs and other direct costs associated with our acquisitions. These amounts are unrelated to our core performance during any particular period and are impacted by the timing of the acquisition. We exclude acquisition-related expenses from our SG&A expense and total operating expenses to provide investors a method to compare our operating results to prior periods and to peer companies, as such amounts can vary significantly based on the frequency of acquisitions and the magnitude of acquisition expenses.
Gain on disposal of intangible assets. The gain is the result of our transfer of certain intellectual property rights under a license agreement to Trigall Australia as part of our equity investment in the joint venture. This is a unique item unrelated to our core performance during any particular period. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Change in contingent consideration obligation. The change in contingent consideration obligation represents our estimated change in the value of contingent earn-out related to the
Interest expense – amortization of debt discount. Amortization of debt discount and debt issuance costs are primarily related to our working capital lines of credit and term loans. These amounts are non-cash charges and are unrelated to our core performance during any particular period. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Dividends accrued for participating securities and accretion. Dividends accrued for participating securities and accretion relates to dividends accrued for the Series B convertible preferred stock and the accretion for the discount related to the warrants issued in conjunction with the Series B convertible preferred stock. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Descriptions of the non-GAAP financial measures included in this release and the accompanying tables are as follows:
Adjusted gross margins. We define adjusted gross margins as gross margins, adjusted to exclude the impact of inventory write-downs. We believe that the use of adjusted gross margins is useful to investors and other users of our financial statements in evaluating our operating performance because it provides a method to compare our operating results to prior periods and to peer companies after making adjustments for amounts that can vary significantly from period to period.
Adjusted net loss and loss per share. We define adjusted net loss as net loss attributable to S&W Seed Company less interest expense – amortization of debt discount, non-recurring transaction costs, change in contingent consideration obligation and dividends accrued for participating securities and accretion. We believe that these non-GAAP financial measures provide useful supplemental information for evaluating our operating performance.
Adjusted EBITDA. We define adjusted EBITDA as GAAP net loss, adjusted to exclude interest expense, interest expense – amortization of debt discount, benefit from income taxes, depreciation and amortization, non-recurring transaction costs, non-cash stock-based compensation, foreign currency loss, gain on disposal of intangible assets, change in contingent consideration obligation, dividends accrued for participating securities and accretion, and gain on sale of equity investment. We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We use adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. Management does not place undue reliance on adjusted EBITDA as its only measure of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP.
Financial Tables
For a complete press release including financial tables, please view online at: https://swseedco.com/investors/press-releases/
About
Founded in 1980,
Safe Harbor Statement
This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" describe future expectations, plans, results, or strategies and are generally preceded by words such as "ability," "believe," "may," "future," "plan," "should" or "expects." Forward-looking statements in this release include, but are not limited to: our guidance on revenue and adjusted EBITDA for the fiscal year ending
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
(UNAUDITED) | |||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||
Revenue | $ | 12,937,802 | $ | 12,631,409 | $ | 32,803,667 | $ | 28,163,090 | |||||||||
Cost of revenue | 10,188,511 | 10,971,045 | 25,549,865 | 23,376,057 | |||||||||||||
Gross profit | 2,749,291 | 1,660,364 | 7,253,802 | 4,787,033 | |||||||||||||
Operating expenses | |||||||||||||||||
Selling, general and administrative expenses | 6,241,461 | 7,091,093 | 11,294,058 | 12,678,727 | |||||||||||||
Research and development expenses | 1,503,473 | 2,110,413 | 3,018,853 | 4,105,541 | |||||||||||||
Depreciation and amortization | 1,253,904 | 1,373,653 | 2,590,338 | 2,704,698 | |||||||||||||
Total operating expenses | 8,998,838 | 10,575,159 | 16,903,249 | 19,488,966 | |||||||||||||
Loss from operations | (6,249,547) | (8,914,795) | (9,649,447) | (14,701,933) | |||||||||||||
Other (income) expense | |||||||||||||||||
Foreign currency loss | 176,624 | 258,482 | 367,539 | 421,028 | |||||||||||||
Gain on disposal of intangible assets | (1,796,252) | — | (1,796,252) | ||||||||||||||
Change in contingent consideration obligation | — | (466,376) | — | (528,630) | |||||||||||||
Interest expense - amortization of debt discount | 578,112 | 221,196 | 861,755 | 413,391 | |||||||||||||
Interest expense, net | 1,092,327 | 589,694 | 1,879,006 | 1,142,539 | |||||||||||||
Gain on sale of equity investment | (32,030) | — | (32,030) | — | |||||||||||||
Other income (expense) | 4,561 | 23,771 | (39,709) | (10,589) | |||||||||||||
Loss before income taxes | (6,272,889) | (9,541,562) | (10,889,756) | (16,139,672) | |||||||||||||
(Benefit from) provision for income taxes | (282,296) | 257,776 | (383,960) | 91,974 | |||||||||||||
Net loss | (5,990,593) | (9,799,338) | (10,505,796) | (16,231,646) | |||||||||||||
(Loss) income attributable to noncontrolling interests | (4,588) | 13,537 | (10,850) | (729) | |||||||||||||
Net loss attributable to | $ | (5,986,005) | $ | (9,812,875) | $ | (10,494,946) | $ | (16,230,917) | |||||||||
Calculation of net loss for loss per share: | |||||||||||||||||
Net loss attributable to | $ | (5,986,005) | $ | (9,812,875) | $ | (10,494,946) | $ | (16,230,917) | |||||||||
Dividends accrued for participating securities and accretion | (114,062) | — | (228,123) | — | |||||||||||||
Net loss attributable to common shareholders | $ | (6,100,067) | $ | (9,812,875) | $ | (10,723,069) | $ | (16,230,917) | |||||||||
Net loss attributable to | $ | (0.14) | $ | (0.25) | $ | (0.25) | $ | (0.43) | |||||||||
Weighted average number of common shares outstanding, | 42,651,270 | 38,461,049 | 42,627,645 | 37,617,457 | |||||||||||||
TABLE A1 | ||||||||||||||||||
ITEMIZED RECONCILIATION BETWEEN GROSS PROFIT AND NON-GAAP ADJUSTED GROSS PROFIT | ||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||
Gross profit | $ | 2,749,291 | $ | 1,660,364 | $ | 7,253,802 | $ | 4,787,033 | ||||||||||
Inventory write-downs | 147,202 | 435,035 | 685,200 | 742,035 | ||||||||||||||
Non-GAAP adjusted gross profit | $ | 2,896,493 | $ | 2,095,399 | $ | 7,939,002 | $ | 5,529,068 | ||||||||||
Non-GAAP adjusted gross margin | 22.4 | % | 16.6 | % | 24.2 | % | 19.6 | % | ||||||||||
TABLE A2 | ||||||||||||||||||
ITEMIZED RECONCILIATION BETWEEN NET LOSS AND NON-GAAP ADJUSTED NET LOSS | ||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||
Net loss attributable to | $ | (5,986,005) | $ | (9,812,875) | $ | (10,494,946) | $ | (16,230,917) | ||||||||||
Interest expense - amortization of debt discount | 578,112 | 221,196 | 861,755 | 413,391 | ||||||||||||||
Non-recurring transaction costs | 189,125 | — | 262,618 | — | ||||||||||||||
Change in contingent consideration obligation | — | (466,376) | — | (528,630) | ||||||||||||||
Dividends accrued for participating securities and accretion | (114,062) | — | (228,123) | — | ||||||||||||||
Non-GAAP adjusted net loss | $ | (5,332,830) | $ | (10,058,055) | $ | (9,598,696) | $ | (16,346,156) | ||||||||||
Non-GAAP adjusted net loss attributable to | $ | (0.13) | $ | (0.26) | $ | (0.23) | $ | (0.43) | ||||||||||
Weighted average number of common shares | 42,651,270 | 38,461,049 | 42,627,645 | 37,617,457 | ||||||||||||||
TABLE B | |||||||||||||||||||||
ITEMIZED RECONCILIATION BETWEEN NET LOSS AND NON-GAAP ADJUSTED EBITDA | |||||||||||||||||||||
(UNAUDITED) | |||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Net loss attributable to | $ | (5,986,005) | $ | (9,812,875) | $ | (10,494,946) | $ | (16,230,917) | |||||||||||||
Interest expense, net | 1,092,327 | 589,694 | 1,879,006 | 1,142,539 | |||||||||||||||||
Interest expense - amortization of debt discount | 578,112 | 221,196 | 861,755 | 413,391 | |||||||||||||||||
Benefit from income taxes | (282,296) | 257,776 | (383,960) | 91,974 | |||||||||||||||||
Depreciation and amortization | 1,253,904 | 1,373,653 | 2,590,338 | 2,704,698 | |||||||||||||||||
Non-recurring transaction costs | 189,125 | — | 262,618 | — | |||||||||||||||||
Non-cash stock-based compensation | 305,894 | 1,014,203 | 762,006 | 1,408,515 | |||||||||||||||||
Foreign currency loss | 176,624 | 258,482 | 367,539 | 421,028 | |||||||||||||||||
Gain on disposal of intangible assets | (1,796,252) | - | (1,796,252) | - | |||||||||||||||||
Change in contingent consideration obligation | — | (466,376) | — | (528,630) | |||||||||||||||||
Dividends accrued for participating securities and accretion | (114,062) | — | (228,123) | — | |||||||||||||||||
Gain on sale of equity investment | (32,030) | — | (32,030) | — | |||||||||||||||||
Non-GAAP adjusted EBITDA | $ | (4,614,659) | $ | (6,564,247) | $ | (6,212,049) | $ | (10,577,402) | |||||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(UNAUDITED) | ||||||||||
2022 | 2022 | |||||||||
ASSETS | ||||||||||
CURRENT ASSETS | ||||||||||
Cash and cash equivalents | $ | 1,328,172 | $ | 2,056,508 | ||||||
Accounts receivable, net | 24,099,180 | 19,051,236 | ||||||||
Inventories, net | 52,952,095 | 54,515,894 | ||||||||
Prepaid expenses and other current assets | 3,282,244 | 1,605,987 | ||||||||
TOTAL CURRENT ASSETS | 81,661,691 | 77,229,625 | ||||||||
Property, plant and equipment, net | 15,706,571 | 16,871,669 | ||||||||
Intangibles, net | 30,951,270 | 34,095,827 | ||||||||
Right of use asset - operating leases | 4,234,241 | 4,094,253 | ||||||||
Other assets | 1,667,034 | 1,496,477 | ||||||||
TOTAL ASSETS | $ | 134,220,807 | $ | 133,787,851 | ||||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY | ||||||||||
CURRENT LIABILITIES | ||||||||||
Accounts payable | $ | 15,275,082 | $ | 15,901,116 | ||||||
Deferred revenue | 6,184,025 | 605,960 | ||||||||
Accrued expenses and other current liabilities | 9,452,112 | 10,788,740 | ||||||||
Current portion of working capital lines of credit, net | 41,410,217 | 12,678,897 | ||||||||
Current portion of long-term debt, net | 7,743,900 | 8,316,783 | ||||||||
TOTAL CURRENT LIABILITIES | 80,065,336 | 48,291,496 | ||||||||
Long-term working capital lines of credit, less current portion | — | 21,703,286 | ||||||||
Long-term debt, net, less current portion | 3,731,856 | 3,992,540 | ||||||||
Other non-current liabilities | 3,338,740 | 3,587,041 | ||||||||
TOTAL LIABILITIES | 87,135,932 | 77,574,363 | ||||||||
MEZZANINE EQUITY | ||||||||||
Preferred stock, | 5,032,942 | 4,804,819 | ||||||||
TOTAL MEZZANINE EQUITY | 5,032,942 | 4,804,819 | ||||||||
STOCKHOLDERS' EQUITY | ||||||||||
Common stock, | 42,788 | 42,609 | ||||||||
(134,196) | (134,196) | |||||||||
Additional paid-in capital | 165,444,354 | 163,892,575 | ||||||||
Accumulated deficit | (116,596,626) | (105,873,557) | ||||||||
Accumulated other comprehensive loss | (6,735,375) | (6,560,600) | ||||||||
Noncontrolling interests | 30,988 | 41,838 | ||||||||
TOTAL STOCKHOLDERS' EQUITY | 42,051,933 | 51,408,669 | ||||||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY | $ | 134,220,807 | $ | 133,787,851 | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(UNAUDITED) | ||||||||||
Six Months Ended | ||||||||||
2022 | 2021 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
Net loss | $ | (10,505,796) | $ | (16,231,646) | ||||||
Adjustments to reconcile net loss from operating activities to net | ||||||||||
cash used in operating activities: | ||||||||||
Stock-based compensation | 762,007 | 1,408,515 | ||||||||
Allowance for doubtful accounts | (125,209) | 221,163 | ||||||||
Inventory write-down | 685,200 | 742,035 | ||||||||
Depreciation and amortization | 2,590,338 | 2,704,698 | ||||||||
Gain on disposal of property, plant and equipment | (4,411) | - | ||||||||
Gain on sale of equity investment | (32,030) | - | ||||||||
Gain on disposal of intangible assets | (1,796,252) | - | ||||||||
Change in deferred tax provision | (259,747) | — | ||||||||
Change in foreign exchange contracts | 19,466 | 239,713 | ||||||||
Foreign currency transactions | (200,667) | — | ||||||||
Change in contingent consideration obligation | — | (528,630) | ||||||||
Amortization of debt discount | 861,755 | 413,391 | ||||||||
Changes in: | ||||||||||
Accounts receivable | (3,968,108) | 2,513,639 | ||||||||
Inventories | 557,442 | (5,741,778) | ||||||||
Prepaid expenses and other current assets | 20,736 | 170,844 | ||||||||
Other non-current asset | (733,165) | (95,186) | ||||||||
Accounts payable | (385,529) | 1,131,032 | ||||||||
Deferred revenue | 5,578,365 | 5,504,147 | ||||||||
Accrued expenses and other current liabilities | (1,256,423) | (505,240) | ||||||||
Other non-current liabilities | (207,625) | (12,521) | ||||||||
Net cash used in operating activities | (8,399,653) | (8,065,824) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||
Additions to property, plant and equipment | (154,997) | (1,227,368) | ||||||||
Proceeds from disposal of property, plant and equipment | 3,660 | 21,113 | ||||||||
Net proceeds from sale of equity investment | 400,000 | — | ||||||||
Proceeds from joint venture transaction | 2,000,000 | — | ||||||||
Net cash provided by (used in) investing activities | 2,248,663 | (1,206,255) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
Net proceeds from sale of common stock | — | 4,920,693 | ||||||||
Taxes paid related to net share settlements of stock-based compensation awards | (12,949) | (158,288) | ||||||||
Borrowings and repayments on lines of credit, net | 6,598,076 | 3,911,452 | ||||||||
Borrowings of long-term debt | 285,005 | 875,683 | ||||||||
Debt issuance costs | (359,527) | (112,084) | ||||||||
Repayments of long-term debt | (1,063,661) | (737,843) | ||||||||
Net cash provided by financing activities | 5,446,944 | 8,699,613 | ||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (24,290) | (233,405) | ||||||||
(728,336) | (805,871) | |||||||||
CASH AND CASH EQUIVALENTS, beginning of the period | 2,056,508 | 3,527,937 | ||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 1,328,172 | $ | 2,722,066 | ||||||
Company Contact:
S&W Seed Company
Phone: (720) 593-3570
www.swseedco.com
Investor Contact:
Phone: (602) 889-9700
sanw@lythampartners.com
www.lythampartners.com
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