S&W SEED COMPANY. SECOND QUARTER FISCAL YEAR 2014 S&W Seed Company Corporate Presentation Nasdaq: SANW

Transcription

1 S&W SEED COMPANY GLOBAL AGRICULTURAL BREEDING, PRODUCTION, PROCESSING AND MARKETING SECOND QUARTER FISCAL YEAR 2014 S&W Seed Company Corporate Presentation Nasdaq: SANW

2 Forward Looking Statements This presentation may contain "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 "Forward-looking statements" describe future expectations, plans, results, or strategies and are generally preceded by words such as "may," "future, "plan" or "planned, "will" or "should, "expected, "anticipates, "draft, "eventually" or "projected. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors, and other risks identified in the Company s 10-K for the fiscal year ended June 30, 2013 and other filings made by the Company with the Securities and Exchange Commission. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 2

3 S&W Seed Company (Nasdaq: SANW) S&W s goal is to become the world s premiere alfalfa seed company, leveraging its elite breeding and production capabilities to expand its global reach across all dormancy needs Drive revenue growth through organic operations and strategic acquisitions Expand addressable markets through the expansion of new dormancy varieties, as well as developing first-to-market tropical varieties Enhance gross margins and profitability through a series of management initiatives Develop stevia varieties that incorporate great taste with strong yields Reconciliation of EBITDA is included in the appendix to this presentation $ in thousands $ in Millions $70 $60 $50 $40 $30 $20 $10 $0 $2,000 $1,500 $1,000 $500 $0 ($500) ($1,000) ($1,500) $6.7 Revenues (period ending June 30) $3.6 $14.2 $37.3 $52 - $ E $612.3 Adjusted EBITDA (period ending June 30) ($1,139.4) $1,055.0 $1,199.5 $1, TTM Dec13 S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 3

4 A Track Record of Accomplishment 1980 to 2010 Private company; leading alfalfa seed genetics; lifestyle business May 2010 IPO; raised $15 Million ; management team focused on growing operations FY 2012 Acquired customer list from international distributor Genetics International ; opening new seed markets; expands production capabilities in San Joaquin Valley Leased and purchased production land in Imperial Valley FY 2013 Acquired rights to dormant alfalfa genetics Acquired Imperial Valley Seeds (IVS) essentially doubling the size of the company Signed agreement with Monsanto and Forage Genetics to develop S&W GMO varieties FY 2013 (cont.) Acquired Australian-based Seed Genetics International (SGI); creating the largest nondormant alfalfa seed in the world Entered final breeding trials of world s first tropical alfalfa seed variety FY 2014 and Beyond Execute on integrating SGI and realizing the many synergies for gross margin expansion that exist Focus on creating the world s premier alfalfa seed company Leverage the agricultural platform S&W has created S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 4

5 Macro Demands Favor S&W Alfalfa Population increase Per capita consumption increases Changes in diet to more protein-based, livestock products Decreases in arable land and shifting to more saline marginal soils Alfalfa is one of the largest crops in the U.S. and the World, utilized as a forage by livestock. It is estimated that the world will need to increase food production by between 60% and 100% by 2050 to meet a roughly 30% increase in the overall population. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 5

6 S&W Alfalfa Portfolio S&W Alfalfa Seed Non-Dormant Tropical Dormant Classic Breeding GMO Current Development S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 6

7 Leading Genetics Superior Non-Dormant Genetics Highest yielding University of Arizona Alfalfa Seed Yield Trials (2009) Highest salt tolerance In tons per acre Cutting Date Period 4/10/09 5/5/09 6/16/09 7/14/09 8/11/09 9/10/09 10/8/09 Totals (April - Oct) SW FG Alfalfa Seed Variety CW TS DS Mecca III SW SW SW Fertilac S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 7

8 Value Capture Opportunity S&W s proprietary seed varieties significantly out yield CUF $45 investment can generate $1,200 of incremental yield per acre This is an example S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 8

9 The Seed Market Top 3 seed companies in the world control about 50% of the world s seed supply Top 10 companies own approximately 73% of all seeds planted on the earth right now Monsanto 27% Dupont (Pioneer) 17% Syngenta 9% Groupe Limagrain 5% Land O Lakes 4% KWS AG 3% Bayer Crop Science 2% Dow AgroSciences (~$600M) 2%...the top 10 multinational seed companies now [2011] control 73 percent of the world's commercial seed market, up from 37 percent in ETC Group *ETC Group S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 9

10 Production Platform S&W Pounds of Alfalfa Seed Sourced Millions of Pounds of Seed Current production and sourcing is entirely comprised of non-dormant alfalfa seed Fall 2010 Fall 2011 Fall 2012 Spring/Fall 2013 S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 10

11 Diversified Production Non-Dormant San Joaquin Valley Imperial Valley S&W s historical production base Recently approved alfalfa GMO Cost of production continues to rise due to competing crops California seed demands premium pricing Acquired IVS in October 2012 No GMO alfalfa seed production in Imperial County Irrigation water secured; supplied by Colorado River; lower cost Large and tenured grower base Premium California pricing Proprietary and non-proprietary seed production Imperial Valley San Joaquin Valley South Australia Acquired SGI in April 2013 Strong gateway to Asian markets No GMO allowed Lower cost of production (GM expansion opportunity) S&W controls 50% of seed production Inferior pricing to California production South Australia S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 11

12 Global Distribution Network Growth Opportunities China India Argentina U.S. Equatorial and Tropical Sudan and Northern Africa S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 12

13 Sales by Geography TTM December 2013 Sales 2% 8% 4% 3% Growth Opportunities China 11% 11% 38% India Argentina U.S. Equatorial and Tropical 23% MENA US Europe Australia Mexico South America Asia Other Sudan and Northern Africa S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 13

14 Strong Development Pipeline Dormant In July 2013, S&W announced the initiation of its dormant alfalfa seed production program with the planting of production acreage in Manitoba, Canada This marks the company s first planting of production acres of its dormant alfalfa seed varieties, which is suited for cooler climates such as the northern United States, Canada, Europe and China. Rhino is a 3 dormancy, meaning it allows for approximately three hay cuttings per year, and has outstanding yield characteristics. The company is still early in the process, but are executing on all the various steps needed to become a growing player in the dormant market in the coming years. Tropical Entered final development and testing phase in Australia for a new alfalfa seed variety, which it believe will be the world s first alfalfa variety successfully bred with traits suitable for tropical climates The goal of this program is to give farmers in equatorial and tropical regions the ability to enjoy the advantages alfalfa offers for dairy and livestock production without having to rely on purchasing alfalfa hay imported from more temperate non-tropical regions. The tropical areas of the world have a rapidly expanding animal and human population, but there are a few leguminous forage and fodder varieties that grow in the tropics, and none that have the production capacity of alfalfa. Non-Dormant GMO Partnerships with Monsanto and Forage Genetics International Incorporates the Roundup Ready and other biotech traits into specific S&Wdeveloped varieties Enables S&W to produce and sell seed of approved varieties containing the Roundup Ready trait Higher price point and margins than traditional non-biotech alfalfa seed FGI and S&W are now commencing field trials to confirm agronomic performance and trait efficacy. Following successful test results that meet the necessary guidelines, S&W will start the seed ramp up necessary to have the quantities required for the marketplace. Non-Dormant Dormant Tropical Non-Dormant GMO Current Production Fall 2014 Spring 2015 Fall 2015 S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 14

15 Seed Processing 40 acre Facility Three lines alfalfa, wheat, small grains Capable of processing 24 million pounds per year Air emission standards grandfathered by State of California Ability to clean and process seed for other companies with additional capacity Agreements already in place with RSI/Syngenta and Penny Newman Five Points, CA S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 15

16 Strong Alfalfa Platform Alfalfa Seed Varieties Highest Yielding and Most Salt Tolerant Non-Dormant Varieties Biotech Varieties Currently in Field Trials In Collaboration with FGI and Monsanto Entered Final Development of the World s First Tropical Varieties Dormant Production Has Commenced, with Ongoing Breeding to Enhance Varieties Production and Distribution One of the Largest California Alfalfa Seed Production and Sourcing Capabilities Largest Alfalfa Seed Producer in Australian Geographically Diversified Production Base Seed Processing Own one of California s Largest Seed Processing Facilities 100% Access to one of Imperial Valley s largest mills Worldwide Distribution and Dealer Network S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 16

17 Stevia: Research & Development All-Natural Sugar Substitute (Reb-A) 300 times sweeter than sugar No Calories, No Carbs, Zero Glycemic Index Domestic Beverage Companies Looking for Domestic Suppliers Reb-A Received GRAS Designation by U.S. FDA in December 2008 as a Food and Beverage Additive Hundreds of new products launched or coming to the market Worldwide sales of stevia reached 4,100 tons in 2013, or $304 million, and is expected to reach 6,250 tons by 2016, equivalent to $490 million, according to research by Zenith International (October 2013) S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 17

18 Stevia: Research & Development Utilize its research and breeding expertise to develop varieties that can thrive in the state of California, while obtaining attractive taste and yield profiles Key Developments The company announced a breakthrough with the development of the internally dubbed Monster Plant The company has also developed lines of stevia that it believes has the taste and sweetness characteristics that consumers will desire The company is in the process of breeding these various lines together to develop a variety that will match both the taste characteristics with the yield characteristics. Dr. Clinton Shock S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 18

19 FINANCIALS Expertise in Agricultural Breeding, Production and Processing

20 Annual Revenue Growth $70 $60 $52 - $58 $ in Millions $50 $40 $30 $37.3 $20 $14.2 $10 $6.7 $3.6 $ E S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 20

21 Gross Margins 40% 35% 30% 25% 20% 15% 10% 5% 0% Historical S&W 31.0% 26.2% 27.5% 37.4% 27.6% 15.9% 18.6% 20.7% * Q114 Q214 Gross Margin Post SGI & IVS Acquisitions 1. Expansion Strategies Optimization of Australian seed through U.S. blending 2. Planting of elite S&W varieties in lower cost Australia 3. Conversion of Imperial Valley fields away from non-proprietary (CUF) to proprietary varieties 4. Value capture model of attaining commensurate value for seed genetics Reconciliation of FY2013 Gross Margins is found included in the appendix to this presentation S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 21

22 Adjusted EBITDA Annual Adjusted EBITDA Quarterly Adjusted EBITDA $2,000 $1,000 $882.8 $1,500 $1,000 $612.3 $1,055.0 $1,199.5 $1,592.4 $800 $600 $400 $682.3 $694.8 $500 $200 $0 ($500) TTM Dec13 $0 ($200) Q313 Q413 Q114 Q214 ($400) ($1,000) ($1,500) ($600) ($1,139.4) ($800) Reconciliation of EBITDA is included in the appendix to this presentation ($667.5) S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 22

23 Adjusted EPS $0.15 $0.10 $0.11 $ per share $0.05 $0.00 ($0.05) $0.06 $ * 6 Months 2014 ($0.10) ($0.08) ($0.15) ($0.14) ($0.20) *Reconciliation of FY2013 Adjusted EPS found included in the appendix to this presentation S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 23

24 Summary of Financial Results Fiscal Years Ended June 30, 2011 June 30, 2012 June 30, 2013 Pro Forma June 30, Pro Forma June 30, Revenue $3.64 $14.15 $37.34 $48.73 $54.7 Adjusted Gross Profit $1.36 $3.91 $5.93 $9.69 $8.81 Adjusted Gross Profit Margin 37.4% 27.6% 15.9% 19.9% 16.1% Adjusted EBITDA 2 ($1.14) $1.1 $1.2 $4.47 $2.25 Adjusted EBITDA Margin 2 (31.3%) 7.8% 3.2% 9.2% 4.1% Adjusted Net Income ($0.81) $0.38 ($0.68) $1.84 ($0.47) Adjusted Net Margin (22.3%) 2.6% (1.8%) 3.8% 0.6% Adjusted Diluted EPS ($0.14) $0.06 ($0.08) $0.26 ($0.05) 1 Pro forma includes Imperial Valley Seeds, Inc. which closed on October 1, 2012 and Seed Genetic international which closed on April 1, EBITDA is a non-gaap measure. See appendix for a reconciliation of EBITDA Non-GAAP Adjustments for the fiscal year ended June 30, 2013 include $2,333,123 pertaining to the crop loss charge for the company s stevia operations, $486,166 pertaining to acquisition-related expenses associated with IVS and SGI, and a tax adjustment for the exclusion of the aforementioned inventory charges and business combination expenses. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 24

25 Balance Sheet Data As of 12/31/2013 Cash and cash equivalents $2.6 Accounts receivable, net $11.9 Inventory $23.4 Total assets $73.1 Total long-term debt $4.7 Total shareholders equity $49.7 Shares outstanding (basic/diluted) MM Warrants outstanding MM 1 Includes 1.59 million with weighted average exercise price of $ &2 Shares and warrant amounts are as of December 31, 2013 S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 25

26 Proven Leadership Mark Grewal CEO, President & Director Danielson Gardner VP of Seed Breeding and Genetics Matthew Szot CFO, Principal Accounting Officer and Senior VP of Finance Fred Fabre VP of Sales and Marketing Dennis Jury EVP of Operations Daniel Karsten VP of Processing S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 26

27 Investment Highlights Recap Large Global Market Opportunity in One of the World s Leading Crops: Alfalfa Market Leader In Non-Dormant Alfalfa Seed Varieties Economic Advantages of Products With Proven Yield Advantages For Alfalfa Platform Positioned To Be Expand Addressable Market Opportunity: Dormant, Tropical Strong Balance Sheet, Leading Genetic Varieties, Global Distribution Platform Research and Development Stage of Emerging Stevia Field Significant And Tangible Growth and Margin Expansion Opportunities Experienced Leadership Team S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 27

28 S&W SEED COMPANY GLOBAL AGRICULTURAL BREEDING, PRODUCTION AND PROCESSING Thank You

29 Adjusted EBITDA Reconciliation Fiscal Years Ended: June 30, In $ thousands (1) Net Income $1,084.7 $420.8 $478.9 ($811.4) $374.8 ($678.0) Depreciation and amortization Non-cash stock based compensation ,053.9 Foreign currency loss Interest (income) expense, net (1.2) (7.0) Provision (Benefit) for Income Taxes (184.5) (685.6) (361.9) Adjusted EBITDA $1,100.7 $685.5 $612.3 ($1,139.4) $1,055.0 $1,199.5 Non-GAAP Adjustments for the fiscal year ended June 30, 2013 include $2,333,123 pertaining to the crop loss charge for the company s stevia operations, $486,166 pertaining to acquisition-related expenses associated with IVS and SGI, and a tax adjustment for the exclusion of the aforementioned inventory charges and business combination expenses. Note: EBITDA is included in this document because it is a key measure used by management and board of directors to understand and evaluate core operating performance and trends, to prepare and approve the Company s annual budget and to develop short- and longterm operational plans. The above table discloses the Company s EBITDA calculation, a non-gaap financial measure. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 29

30 Quarterly EBITDA Reconciliation In $ thousands Mar (1) Jun (2) Sep Dec TTM Dec (1) (2) Net Income ($640.1) ($539.0) $41.2 $110.1 ($1,027.7) Depreciation and amortization ,106.2 Non-cash stock based compensation ,301.4 Foreign currency loss (34.0) Interest (income) expense, net Provision (Benefit) for Income Taxes (369.5) (243.8) (506.2) Adjusted EBITDA ($667.5) $682.3 $694.8 $882.8 $1,592.4 (1) Non-GAAP Adjustments for the three months ended March 31, 2013 include $1,840,209 million pertaining to an inventory impairment charge for the company's stevia operations, $132,536 pertaining to acquisition-related expenses associated with SGI, and a tax adjustment for the exclusion of the aforementioned inventory charges and business combination expenses. (2) Non-GAAP Adjustments for the three months ended June 30, 2013 include $192,914 pertaining to the crop loss charge for the company s stevia operations, $300,881 pertaining to non-recurring acquisition-related expenses associated with SGI, and a tax adjustment for the exclusion of the aforementioned inventory charges and business combination expenses.note: EBITDA is included in this document because it is a key measure used by management and board of directors to understand and evaluate core operating performance and trends, to prepare and approve the Company s annual budget and to develop short- and long-term operational plans. The above table discloses the Company s EBITDA calculation, a non-gaap financial measure. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 30

31 Adjusted Statement of Operations S&W SEED COMPANY (A NEVADA CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Year Ended June 30, June 30, NON-GAAP NON-GAAP GAAP Adjustments Adjusted GAAP Adjustments Adjusted Revenue $ 12,723,905 $ 12,723,905 $ 754,721 $ 37,338,258 $ 37,338,258 $ 14,147,617 Cost of revenue 10,323,048 (192,914) 10,130, ,647 33,743,221 (2,333,123) 31,410,098 10,239,914 Gross profit 2,400, ,914 2,593,771 (168,926) 3,595,037 2,333,123 5,928,160 3,907, % 20.4% -22.4% 9.6% 15.9% 27.6% Operating expenses Selling, general and administrative expenses 2,666,835 (300,881) 2,365, ,969 5,762,838 (486,166) 5,276,672 2,772,711 Research and development expenses 230, ,570 43, , , ,523 Depreciation and amortization 320, ,023 71, , , ,855 Total operating expenses 3,217,428 (300,881) 2,916, ,063 6,963,305 (486,166) 6,477,139 3,288,089 Income (loss) from operations (816,571) 493,795 (322,776) (953,989) (3,368,268) 2,819,289 (548,979) 619,614 Other expense Loss on disposal of fixed assets ,532 Foreign currency loss 263, , , ,973 - Interest expense, net 196, ,008 8, , ,909 20,937 Income (loss) before income tax expense (benefit) (1,276,552) (782,757) (962,141) (3,859,150) (1,039,861) 574,145 Income tax expense (benefit) (397,534) 153,774 (243,760) (350,506) (1,343,123) 981,214 (361,909) 199,310 Net income (loss) $ (879,018) 340,021 $ (538,997) $ (611,635) $ (2,516,027) 1,838,075 $ (677,952) $ 374,835 Net income (loss) per common share: Basic $ (0.08) $ (0.05) $ (0.10) $ (0.29) $ (0.08) $ 0.06 Diluted $ (0.08) $ (0.05) $ (0.10) $ (0.29) $ (0.08) $ 0.06 Weighted average number of common shares outstanding: Basic 11,405,120 11,405,120 6,222,222 8,770,975 8,770,975 5,904,110 Diluted 11,405,120 11,405,120 6,330,390 8,770,975 8,770,975 5,906,899 Non-GAAP Adjustments for the fiscal year ended June 30, 2013 include $2,333,123 pertaining to the crop loss charge for the company s stevia operations, $486,166 pertaining to acquisition-related expenses associated with IVS and SGI, and a tax adjustment for the exclusion of the aforementioned inventory charges and business combination expenses. S&W Seed Company Expertise in Agricultural Breeding, Production, Processing and Marketing 31