HIAWATHA, KS, Nov. 12, 2015 /CNW/ – (TSX: AJX) — AgJunction today reported financial results for the third quarter ended September 30, 2015. All currency amounts are expressed in U.S. dollars.
Novariant Merger
On October 15, 2015, AgJunction Inc. (AgJunction or the “Company”) completed a merger with Novariant, Inc. (“Novariant”) initially announced on March 16, 2015. Details of the transaction, including unaudited pro forma consolidated financial statements up to June 30, 2015, are contained within AgJunction’s Management Information Circular dated August 28, 2015 filed on www.SEDAR.com on September 3, 2015.
The merger was completed subsequent to the close of AgJunction’s third quarter, and therefore the financial results in this third quarter financial report contain only the operations of AgJunction and do not include third quarter results from Novariant.
With the completion of the merger, AgJunction gains a preeminent position in automated steering and machine control technologies, differentiated by its broad intellectual property portfolio, which includes more than 140 patents, and its ability to deliver application-specific solutions to precision agriculture customers worldwide. As global machine manufacturers increasingly target the integration of autosteer technologies at the factory level, the merged entity can provide increased support and a wider offering of advanced machine automation to current and future OEM and VAR customers. With 182 employees worldwide, AgJunction’s vision is to be the world’s leading OEM and VAR supplier for automated steering and machine control technology for Precision Agriculture.
Third quarter Financial Review
For the three months ended September 30, 2015, the Company reported revenue of $7.6 million, a 21% decrease from $9.6 million in the third quarter of 2014. Lower revenue for the quarter is related to ongoing softness in the aftermarket agricultural retail space, and lower food commodity prices, delaying customer investment and purchasing decisions. These conditions resulted in a drop in the Air ($0.3M) and Outback ($0.8M) business units. The Agronomy Services business, which had sales of $0.6M in Q3 of 2014, was sold April 1, 2015.
In the US, net farm income has been declining since 2013, and according to the September 2015 US Department of Agriculture (“USDA”) report, is forecasted to be down 36% from 2014 results. Lower crop and livestock receipts are the main drivers. The 2015 forecast for net farm income is the lowest since 2006 (since 2002 in inflation-adjusted terms) and a drop of nearly 53 percent from the record high of $123.7 billion in 2013.
“This industry forecast for 2015 remains challenging for all companies in the Ag space. Fortunately, both AgJunction and Novariant began preparing for 2015 over two years ago. Our primary drivers for the remainder of this year are to stay focused on delighting the customers we have and help them be as successful as they can be.” said Dave Vaughn, AgJunction’s CEO. “Moreover, we are ensuring we have sufficient engineering resources in place to support new customers who are re-designing their product lines for the next upturn, and implement the synergies and efficiencies presented to us by the merger as quickly as possible.”
Sales by business unit for the third quarter of September 30, 2015 and 2014 are as follows:
On April 1, 2015, AgJunction divested its Agronomy Services operations to focus all of its resources on delivering the most accurate, innovative and reliable steering solutions.
Sales by geographic region for the third quarter of September 30, 2015 and 2014 are as follows:
United States and Canadian combined revenues were down by 38% from the third quarter of 2014, driven largely by the soft US retail aftermarket. European revenues increased 26% due to increased demand from OEM customers. Sales to other markets, including South America and Asia declined 22%.
Consolidated Q3 2015 gross margin was $3.3 million, or 44% of revenue, versus $3.9 million, or 41% of revenue, in Q3 2014. The difference in gross margin percentages was primarily due to differing product sales mix.
Total operating expenses were reduced year-over-year by 15% to $4.1 million, from $4.8 million in the third quarter of 2014. Research and development expenditures of $1.4 million, declined by $0.5 million, or 23%, compared to $1.9 million during the third quarter of 2014. The decline was primarily due to the sale of the Agronomy Services business, and a greater portion of research and development expenditures being spent on capitalized engineering projects. Sales and marketing expenses of $0.9 million, declined by $0.6 million, or 38%, compared to $1.5 million during the third quarter of 2014, due to several cost saving initiatives and efficiencies realized through restructuring. General and administrative expenses were $1.7 million for the quarter, increasing from $1.5 million, or 21%, in 2014. Novariant merger transaction related costs of $0.2 million were incurred in the third quarter of 2015.
For the third quarter ended September 30, 2015, the Company reported a net loss of $790 thousand, or ($0.01) per share (basic and diluted), compared to a net loss of $816 thousand, or ($0.01) per share (basic and diluted), in the third quarter of 2014.
Nine month Financial Review
For the nine month period ended September 30, 2015, AgJunction reported revenues of $27.4 million representing a 21% decrease from $34.8 million for the same period in 2014. Gross margin for the first nine months of 2015 was $12.1 million, or 44%, versus $16.3 million, or 47%, in the comparable period. Operating expenses declined $3.5 million, or 21%, on a year-over-year basis primarily due to decreases in engineering headcount, of which $0.5M is due to the sale of the Agronomy Services business, and decreases in project spending, and an increase in capitalized R&D.
For the nine months ended September 30, 2015, the Company generated net income from continuing operations of $0.7 million, or $0.01 per share, (basic and diluted), compared to a net loss from continuing operations of $0.1 million, or $0.00 per share, the first nine months of 2014.
At the end of the third quarter of 2015, the Company held cash of $11.9 million compared to $11.2 million at the end of 2014. Working capital was $25.0 million, up from $22.4 million at December 31, 2014.
At September 30, 2015, AgJunction had 72,322,063 common shares outstanding. Following the completion of the Novariant merger, AgJunction has 122,829,219 common shares outstanding and 127,436,222 shares fully diluted as of the date hereof. Directors, officers, and other insiders hold approximately 31% of the outstanding common shares.
Conference Call: Monday November 16, 2015 at 11:00AM ET
A conference call and webcast has been scheduled for Monday November 16 at 11:00 a.m. Eastern Time to review the financial results. To participate in the conference call, please dial +1 (647) 427-7450 approximately 10 minutes before the conference call and provide Conference ID: 69931988. A recording of the call will be available through February 28, 2016. Please dial +1(416) 849-0833 and enter passcode 69931988 to listen to the rebroadcast. The call will be webcast live and archived on the Company’s web site at: http://www.corp.agjunction.com/InvestorCenter/ConferenceCallsOtherEvents.aspx
About AgJunction
AgJunction (www.agjunction.com) provides innovative hardware and software applications for precision agriculture worldwide. The Company holds more than 140 patents and markets its products and services under leading brand names including Novariant, Outback Guidance® and Satloc®. The Company is headquartered in Hiawatha, Kansas, with facilities in Silicon Valley, Scottsdale, Arizona, Calgary, Winnipeg, and Queensland, Australia. AgJunction is listed on the Toronto Stock Exchange (TSX) under the symbol “AJX.” For more information, please go to www.agjunction.com.
This press release contains forward-looking information and forward-looking statements (collectively, “forward-looking information”) within the meaning of applicable securities laws and is based on the expectations, estimates and projections of management of each of AgJunction as of the date of this news release, unless otherwise stated. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this press release contains forward-looking information concerning: the expected benefits of the merger with Novariant; AgJunction’s vision to be the world’s leading OEM and VAR supplier for automated steering and machine control technology for Precision Agriculture; AgJunction’s plans regarding the implementation of the synergies and efficiencies presented by the merger with Novariant; and the Company’s plans for the remainder of the year, including its focus on current customers and ensuring resources are in place to support new customers. Such forward-looking information is provided for the purpose of providing information about management’s current expectations and plans relating to its current and future operations. Investors are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Accordingly, readers should not place undue reliance on such forward-looking information contained in this press release.
In respect of the forward-looking information, AgJunction has provided such information in reliance on certain assumptions that it believes are reasonable at this time, including, but not limited to, planned synergies, capital efficiencies and cost-savings from the merger with Novariant; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labor and services; that AgJunction future results of operations will be consistent with management expectations in relation thereto; the continued availability of capital at attractive prices to fund future capital requirements relating to existing and future assets and projects; future operating costs; that counterparties to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance of contracts; availability of key supplies, components, services, networks and developments; the impact of increasing competition; conditions in general economic, agricultural and financial markets; and the continuity of existing business relationships.
Since forward-looking information addresses future events and conditions, such information by its very nature involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the industries in which AgJunction operates; failure to realize the anticipated benefits of the merger and to successfully integrate AgJunction and Novariant; ability to access sufficient capital from internal and external sources; changes in legislation; departure of key personnel or consultants; competition; inability to introduce new technology and new products in a timely manner; legal claims for the infringement of intellectual property and other claims; fluctuation in foreign exchange or interest rates; uncertainties in the global economy; negative conditions in general economic, agricultural and financial markets; availability of key supplies and components; product liability; and changes in the Global Navigation Satellite System and other systems outside of our control. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on other factors that could affect the Company’s operations or financial results, are included in reports of AgJunction on file with applicable securities regulatory authorities, including but not limited to, AgJunction’s Annual Information Form for the year ended December 31, 2014 which may be accessed on its SEDAR profile at www.sedar.com.
The forward-looking information contained in this press release is made as of the date hereof and each of AgJunction undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
