Sorry to be the bearer of bad news but......
AgriBioTech Inc. Announces Second
Quarter Results
HENDERSON, Nev.--(BUSINESS WIRE)--Feb. 16, 1999--AgriBioTech, Inc. (''ABT'')
(Nasdaq National Market:ABTX - news) Tuesday announced fiscal 1999 second quarter results for
the period ended Dec. 31, 1998.
Due to the seasonal nature of the seed business, second quarter losses are typical for ABT. For
interested parties, an audiotape of a company conference call regarding results will be available for
listening at approximately 9 p.m. (ET) Tuesday at 800/475-6701, access code 435400.
The company reported a net loss of $10.3 million or $0.26 per share (basic and diluted) on net sales
of $75.9 million for the second quarter of fiscal 1999. In the second quarter of fiscal 1998, the
company recorded a net loss of $1.4 million, or $0.05 per share (basic and diluted) on net sales of
$23.4 million. The company also announced a negative EBITDA (earnings before interest expense,
taxes, depreciation and amortization) of $4.4 million for the second quarter of fiscal 1999 compared
to a negative EBITDA of $0.3 million for the same quarter in the prior year. EBITDA is a
cash-based measure of operating profitability.
Selected financial information is as follows:
AgriBioTech, Inc.
Oct. 1-Dec. 31 and July 1-Dec. 31, 1998
(In thousands, except net (loss) per common share)
Three-month period
ended Dec. 31
1998 1997
Net sales $75,939 23,357
Gross profit 17,527 4,695
Operating expenses 25,078 6,208
Earnings (loss) from operations (7,551) (1,513)
Interest expense 3,333 402
Earnings (loss) before income taxes (10,593) (1,393)
Net earnings (loss) (10,282) (1,393)
Net earnings (loss) attributable to common
stock (10,282) (1,420)
Net earnings (loss) per common share
-basic and diluted (0.26) (0.05)
Average shares of common stock
-basic and diluted 40,029 26,738
EBITDA (4,433) (323)
Total assets (at end of period) 375,460 106,354
Total stockholders' equity (at end of period) 211,686 80,597
Six-month period
ended Dec. 31
1998 1997
Net sales 165,540 63,815
Gross profit 41,299 12,229
Operating expenses 46,303 12,679
Earnings (loss) from operations (5,004) (450)
Interest expense 5,578 1,110
Earnings (loss) before income taxes (9,918) (608)
Net earnings (loss) (9,949) (608)
Net earnings (loss) attributable to common stock (9,949) (662)
Net earnings (loss) per common share
-basic and diluted (0.25) (0.03)
Average shares of common stock
-basic and diluted 39,058 25,905
EBITDA 847 1,795
Total assets (at end of period)
Total stockholders' equity (at end of period)
-0-
Net loss for the first six months of fiscal 1999 was $9.9 million or $0.25 per share (basic and
diluted) on net sales of $165.5 million. This compares to a net loss of $0.6 million or $0.03 per share
(basic and diluted) on net sales of $63.8 million for the same period last year. EBITDA for the first
six months of fiscal 1999 was a positive $0.8 million compared to a positive $1.8 million for the
same period last year. ABT today is a significantly larger and different company in terms of its
composition than in the prior year.
The company completed 33 acquisitions through Dec. 31, 1998 compared to 15 acquisitions
through Dec. 31, 1997. Seed companies typically have losses during the October to December time
period due to lower sales and margin levels that are inadequate to cover ongoing operating
expenses. This seasonality is such that ABT will likely always have losses in the December quarter.
Due to acquisitions ABT is significantly larger in fiscal 1999 than it was in fiscal 1998, and therefore
the loss in fiscal 1999 is larger than the loss in fiscal 1998.
The company attributed the results primarily due to the impact of six factors, the latter four of which
are a result of implementation of its long-term business plan:
- Inadequate supply of non-dormant alfalfa seed
- Worldwide excess turfgrass seed supply
- ABT's strategy of increased internal product sourcing
- Higher interest expenses
- Higher amortization expenses
- Increased centralized overhead costs prior to realizing the cost
savings associated with integration
Dr. Johnny Thomas, Chairman and Chief Executive Officer (CEO) said ''Although the company
achieved significant sales and gross margin growth versus the prior year, sales and gross margins
were negatively affected by the industry wide supply shortage of non-dormant alfalfa seed, excess
supply of turfgrass seed worldwide, and the change in size and composition of the company.'' Due to
these dynamics, export sales of alfalfa (primarily non-dormant) and turfgrass seed that commonly
occur in the second fiscal quarter were lower than expected. The company believes that
industry-wide excess seed supply of certain types of forage and turfgrass varieties will likely
suppress prices and gross margins for the remainder of the fiscal year.
Sales and gross margin were also impacted as a result of ABT's strategic objective to source more
of its seed sales from internal production. During ABT's growth and integration phases of
development, this leads to lower sales and higher gross margins compared to when acquired
companies, primarily production companies, were non-affiliated. The second fiscal quarter is the time
of the year an independent production company would sell to a marketing company and record a
sale.
Now that ABT has acquired more production and marketing companies, a sale is not recorded and
profit is not recognized until it is sold to an end customer. However, these production companies still
incur operating expenses during this period. The amount of inter-company sales (which are
eliminated for financial reporting purposes) were approximately $14 million higher in the first six
months of fiscal 1999 than the comparable period in 1998.
In addition, results for the six months of fiscal 1999 were unfavorably impacted by higher
amortization of $2.4 million, higher interest expense related to the acquisitions of $4.5 million, and
higher operating expenses of $3.6 million resulting from building its operational infrastructure ahead
of its revenue growth and restructuring driven cost savings.
Higher interest expense is due to the significant level of high interest costs and fees associated with
financing recent acquisitions with short-term debt. Subsequent to Dec. 31, 1998, certain short-term
debt, including the $15 million Deutsche Bank bridge loan and Bank America Business Credit
overadvance of $15 million, has been repaid primarily through the issuance of convertible
subordinated debt. Management continues to explore means to further improve the capital structure
of the company.
The company previously announced that it anticipates recording a non-recurring restructuring charge
in this fiscal year ranging from $5 to $15 million due to the implementation of phase two of ABT's
long-term business plan to integrate its acquisitions into a single, customer-driven business entity.
The company is now nearing completion of the development of a plan to integrate its acquisitions and
expects to aggressively implement its anticipated integration plan resulting in a fiscal 1999
restructuring charge that will be at the high end of the above range, and possibly greater. The
restructuring charge will be due primarily to severance, facilities closures, and facilities write down
costs. ABT expects a payback on this restructuring charge of less than two years.
ABT has recorded a significant amount of goodwill relating to the acquisitions completed to date.
While the company believes that goodwill is recoverable from future operations in its current
operating structure, as part of the company's planned restructuring, it is likely that product portfolios,
facilities and brands will be consolidated and, therefore, it is possible that some portion of goodwill
will become impaired. Therefore, management intends to again review the recoverability of goodwill
at the time of the restructuring to determine if any impairment has occurred and, if so, record a
write-down to reflect such impairment. A write-down of goodwill would be a non-cash expenditure
and likely be additive to the restructuring charge.
In commenting on the results and the future of ABT, Kent Schulze, President and Chief Operating
Officer (COO) said ''The company will go through a significant amount of change in fiscal 1999 as
we integrate 34 acquired companies into one business entity, and implement our recently developed
strategic plan.'' The 34 companies include the biotechnology company HybriGene, LLC which was
acquired after the close of the fiscal 1999 second quarter. Schulze added, ''Management believes
that the operating results in fiscal 1999 will not be indicative of future financial performance.''
Schulze continued by saying ''After the integration of ABT and implementation of its long-term
strategy, the company will be in position to build on its sector-leading germplasm, market share and
other strengths, including its research and development and biotechnology agreements and assets, to
improve operational performance.'' He concluded his comments by saying ''This spring will be highly
competitive due to excess industry wide seed supplies and likely price discounting by smaller
competitors to maintain market share.
''We are excited, however, about what our R&D has done and we expect will do for our seed
sector. We are marketing new proprietary forage products that offer farmers proven productivity
advantages. We are also very pleased with the strength of performance of our proprietary turfgrass
products as measured by the national turf trials data (NTEP) and customer satisfaction. We will be
bringing more and more productivity-enhancing and differentiated trait products to the market as we
build the new ABT after our integration.''
ABT has recently been the subject of class action lawsuits brought by various law firms.
Management believes that all are without merit and will vigorously defend them. In that regard, ABT
has retained the services of a leading law firm that specializes in defending these types of cases,
Wilson Sonsini Goodrich & Rosati of Palo Alto, Calif.
In late January AgriBioTech announced the purchase of HybriGene LLC and acquisition of exclusive
rights to use HybriGene technology. Due to the need to integrate this into the disclosures in the
company's Dec. 31, 1998 Form 10-Q, including pro forma information, the company has filed a
notification of late filing with respect to such Form 10-Q which will be filed within the five day period
allowed thereunder.
AgriBioTech is a fully integrated full service seed company specializing in the forage and turfgrass
seed sector, complete with research and development of proprietary seed varieties, seed processing
plants, and a national and international distribution and sales network. AgriBioTech's vision is to lead
the turf and forage seed industry in discovering its value potential.
Except for historical financial information, the statements discussed in this media release include
forward-looking statements that involve a number of risks and uncertainties. These include the
company's historical lack of profitability, need to manage its growth, intense competition in the seed
industry, seasonality of quarterly results, weather conditions, volatile stock price and other risks
detailed from time to time in the company's SEC reports. Actual results could differ materially.
Contact:
AgriBioTech Inc., Henderson
John Francis, 702/566-2440
fax, 702/566-2450
www.agribiotech.com
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