AgJunction Reports 2014 Q2 Results

HIAWATHA, KS, Aug. 13, 2014 /CNW/ - (TSX: AJX) -- AgJunction today reported second quarter operating results for the three and six months ended June 30, 2014.  All currency amounts for financial results are expressed in U.S. dollars.

In September 2013, the Company's Outback™ Ground Agriculture product line switched to a new "dealer stocking" sales model in North America where aftermarket revenues are now recorded at dealer net rather than at MSRP, which is approximately a 20% reduction in revenue on the same volume of goods sold. Although aftermarket revenues are lower under this aftermarket dealer program, there is a decrease in commission expense so that gross margin is not impacted. The new model changes the impact of seasonal timing as Outback dealers now purchase stocking inventory months earlier than in the prior model where product was shipped direct to customers from AgJunction inventory.

Second quarter Financial Review

For the three months and quarter ended June 30, 2014, the Company reported total revenue of $10.3 million, a 37% decrease from $16.3 million in the second quarter of 2013.  Results for the quarter were down for all business units compared to the same quarter in 2013.  The lower revenue numbers for the quarter relate to the general softness in the overall global agriculture marketspace, affecting the Company's Outback, OEM and Air product lines.

United States and Canadian combined revenues were down by 30% from the second quarter of 2013 as a result of the new aftermarket dealer program that was implemented during the fourth quarter of 2013, coinciding with expected softness in the aftermarket agricultural retail space.  European revenues decreased 40% due to decreased demand from OEM customers. Sales to Australia and other markets, including South America and Asia, declined 46% and 68%, respectively. 

Adjusting Outback sales in the second quarter of 2013 for the effect of the new aftermarket dealer program, revenues decreased by approximately $1.5 million or 32%. The decline in Agronomy Services revenues is due to a decline in requests for customized development.

"Throughout the second quarter of 2014, AgJunction was impacted by the downturn in agriculture which has led to reduced equipment sales," stated Rick Heiniger, President and CEO.  "These business cycles are typical of the industry in which we operate and are being felt by both our customers and competitors.  I firmly believe that the cost structure we put in place last year, coupled with a strong balance sheet, solid OEM relationships and upcoming product releases, will allow us to exit the downturn stronger than others". 

Sales by business unit for the second quarter of 2014 and 2013 are as follows:

(000's)	Q2 2014	Q2 2013	Change
Outback	$3,640	$  6,858	(46.9%)
OEM	4,036	6,121	(34.1%)
Air	2,064	2,514	(17.9%)
Agronomy Services	558	811	(31.2%)
Total	$10,298	$ 16,304	(36.8%)

Sales by geographic region for the second quarter of 2014 and 2013 are as follows:

(000's)	Q2 2014	Q2 2013	Change
North America	$ 7,300	$10,438	(30.1%)
Europe	2,168	3,593	(39.7%)
Australia	242	448	(46.0%)
Other	588	1,825	(67.8%)
	$10,298	$16,304	(36.8%)

Total international (non-North American) revenue decreased 49% year-over-year to $3.0 million, representing 29% of total Q2 revenue compared to 36% in 2013. North American revenue represented 71% of total revenues as compared to 66% in 2013.

Second quarter consolidated gross margin of $5.5 million was $1.5 million lower year-over-year due to the decreased sales volumes in the quarter.  Gross margins, as a percentage of revenue, were 53.3% during the quarter compared to 43.0% in 2013 due to a change in sales mix along with a decrease in the estimated warranty reserve for our Outback and Air product lines.

Total operating expenses were $6.0 million in the second quarter, as compared to $6.1 million in the same quarter of 2013.  The combined reduction of research and development and sales and marketing expenses of $1.4 million relates to an increased focus on non-recurring engineering ("NRE") projects and several cost saving initiatives and efficiencies realized through the restructuring period which began in late 2013.  These expense reductions were offset by an increase in general and administrative expenses of $1.4 million due to the Company incurring litigation cost for a lawsuit it brought against a competitor believed to be infringing on the Company's propriety software and intellectual property rights.  The infringement does not involve our steering patent portfolio.

For the second quarter ended June 30, 2014, the Company reported a net loss from continuing operations of $0.6 million, or ($0.01) per share (basic and diluted), compared to net income from continuing operations of $1.1 million, or $0.02 per share (basic and diluted), in the second quarter of 2013.

The Company realized a total comprehensive loss of $0.6 million in the second quarter of 2014 compared to total comprehensive income of $0.2 million in the comparable quarter of 2013.

For the six months ended June 30, 2014, AgJunction reported revenues of $25.2 million compared to $32.9 million for the same period in 2013.  Gross margin for the first six months of 2014 was $12.3 million (48.9%) versus $14.8 million (44.8%) in the comparable period. Operating expenses, excluding restructuring, have declined $0.7 million on a year-over-year basis primarily due to cost reductions within research and development and sales and marketing being partially offset by increases in general and administrative expenses. 

For the six months ended June 30, 2014, the Company generated net income from continuing operations of $0.7 million, or $0.01 per share (basic and diluted), compared to net income from continuing operations of $2.6 million, or $0.04 per share (basic and diluted), during the same period of 2013. 

At June 30, 2014, the Company held cash of $12.3 million compared to $2.0 million at the end of 2013. Working capital was $23.6 million as of June 30, 2014, up from $22.9 million at December 31, 2013. 

The Company had 72,291,438 common shares outstanding at June 30, 2014.

As of June 30, 2014, AgJunction determined that a majority of its outstanding shares were held directly or indirectly by U.S. residents.  As a result, effective January 1, 2015, AgJunction will no longer be considered a "foreign private issuer" as defined in Rule 3b-4 of the Securities and Exchange Act of 1933.  AgJunction will continue to be governed by Canadian securities laws and reporting obligations and is not required to register with the Securities and Exchange Commission or make any filings under the Securities and Exchange Act of 1934.  

Conference Call: August 14, 2014 at 11:00AM Eastern Time

A conference call and webcast has been scheduled for tomorrow, August 14, 2014 at 11:00 a.m. Eastern Time to discuss the financial results and provide an update on operations.

To participate in the conference call, please dial [phone] or 1-888-231-8191 approximately 10 minutes before the conference call and provide Conference ID: 76808545.  A recording of the call will be available through October 31, 2014. Please dial [phone] or 1-855-859-2056 and enter passcode 76808545 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 provides innovative hardware and software applications for precision agriculture worldwide. The Company holds numerous patents and markets its products and services under leading brand names including Outback Guidance®, Satloc®, and AgJunction® Cloud Services. AgJunction supports advanced farming practices and enables seamless data connectivity among growers and their agricultural service providers. The Company is headquartered in Hiawatha, Kansas, with facilities in Arizona, Pennsylvania, Manitoba and Queensland. AgJunction is listed on the Toronto Stock Exchange (TSX) under the symbol "AJX" and is one of the TSX Cleantech designated companies. For more information, please go to www.corp.agjunction.com.

The above disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond AgJunction's control, including: the impact of general economic conditions, industry conditions, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to the announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. AgJunction's actual results, performance or achievement could differ materially from those expressed in, or implied by these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceed, that AgJunction will derive therefrom.

AgJunction Inc. Condensed Consolidated Statements of Financial Position (Expressed in U.S. dollars)
						June 30,				December 31,
						2014				2013
						(Unaudited)
Assets
Current assets:
		Cash and cash equivalents			$	12,271,854			$	2,044,278
		Short-term investments				-				8,100,751
		Accounts receivable, net of bad debt provisions
			of $700,336 and $803,410 as of June 30, 2014
			December 31, 2013, respectively			3,745,093				11,170,370
		Inventories				12,954,275				10,040,812
		Prepayments and deposits				855,560				708,489
						29,826,782				32,064,700
Property, plant and equipment						3,027,808				3,166,482
Intangible assets						7,997,889				7,489,245
Goodwill						21,230,519				21,230,519
					$	62,082,998	$			63,950,946
Liabilities and Shareholders' Equity
Current liabilities:
			Accounts payable and accrued liabilities		$	4,098,898			$	5,381,864
			Provisions			335,551				796,318
			Deferred revenue			1,786,108				2,439,317
			Finance lease			19,731				19,978
			Current portion of acquisition consideration			–				400,000
			Collateralized borrowing			–				162,388
						6,240,288				9,199,865
Deferred revenue						579,821				494,568
Finance Lease						8,624				18,104
Shareholders' equity:
			Share capital			122,455,890				121,096,751
			Equity reserve			5,072,069				6,091,297
Accumulated deficit						(72,273,694)				(72,949,639)
						55,254,265				54,238,409
					$	62,082,998	$			63,950,946

AgJunction Inc. Condensed Consolidated Statements of Comprehensive Income and Loss (Unaudited – expressed in U.S. dollars)
						Three months ended June 30,						Six months ended June 30,
						2014			2013			2014			2013
Sales					$		10,298,426	$	16,304,358		$	25,227,019		$	32,915,115
Cost of sales						4,806,330			9,291,488			12,885,267			18,154,494
						5,492,096			7,012,870			12,341,752			14,760,621
Expenses:
	Research and development					1,643,371			2,325,399			3,605,941			4,613,485
	Sales and marketing					1,545,051			2,280,138			3,244,588			4,629,572
	General and administrative					2,773,004			1,422,176			4,641,842			2,965,153
	Restructuring costs					–			69,456			–			225,939
						5,961,426			6,097,169			11,492,371			12,434,149
Operating income (loss)						(469,330)			915,701			849,381			2,326,472
Foreign exchange (gain) loss						85,334			(221,524)			114,239			(274,117)
Interest and other loss (income)						(332)			2,783			(5,400)			(4,198)
(Gain) loss on disposal of property,
	plant and equipment					(8,665)			–			1,608			–
						76,337			(218,741)			110,447			(278,315)
Income (loss) before income taxes						(545,667)			1,134,442			738,934			2,604,787
Income taxes						41,700			–			62,989			–
Net income (loss) from continuing
	operations					(587,367)			1,134,442			675,945			2,604,787
(Gain) loss from discontinued
	operations, net of tax					–			913,113			–			(2,560,786)
Net income (loss)						(587,367)			221,329			675,945			5,165,573
Other comprehensive income						–			–			–			–
Total comprehensive income (loss)					$		(587,367)	$	221,329		$	675,945		$	5,165,573
Earnings per share:
	Basic and diluted income (loss) per
				share	$		(0.01)	$	0.00		$	0.01		$	0.08
			Basic and diluted income (loss) per
				share from continuing operations	$		(0.01)	$	0.02		$	0.01		$	0.04
			Basic and diluted income (loss) per
				share from discontinued operations	$		0.00	$	(0.02)		$	0.00		$	0.04

AgJunction Inc.
Condensed Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)
					Share capital		Equity reserve		Accumulated Deficit		Total equity		Number of shares
Balance at December 31, 2012					119,341,668		7,182,124		(78,125,725)		48,398,067		66,404,215
	Comprehensive income				–		–		5,165,573		5,165,573		–
	Issue of common shares for
		business acquisition, net of
		share issue cost			1,007,000		(1,007,000)		–		–		2,723,705
	Share-based payment
		transactions			–		79,703		–		79,703		–
	Stock options exercised				74,811		–		–		74,811		105,562
	Transfer from equity reserve on
		exercise of stock options			33,387		(33,387)		–		–		–
Balance at June 30, 2013 (unaudited)				$	120,456,866	$	6,221,440	$	(72,960,152)	$	53,718,154		69,233,482
Balance at December 31, 2013					121,096,751		6,091,297		(72,949,639)		54,238,409		69,805,628
	Comprehensive income				–		–		675,945		675,945		–
	Issue of common shares for
		business acquisition, net of
		share issue cost			1,007,000		(1,007,000)		–		–		2,178,964
	Share-based payment
		transactions			–		99,247		–		99,247		–
	Stock options exercised				240,664		–		–		240,664		306,846
	Transfer from equity reserve on
		exercise of stock options			111,475		(111,475)		–		–		–
Balance at June 30, 2014 (unaudited)				$	122,455,890	$	5,072,069	$	(72,273,694)	$	55,254,265		72,291,438

 

AgJunction Inc.
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2014 and 2013
(Unaudited - expressed in U.S. dollars)
				2014		2013
Cash flows from (used in) operating activities:
	Net income from continuing operations		$	675,945	$	2,604,787
	Items not involving cash:
		Depreciation		294,944		397,212
		Amortization		515,931		514,294
		Share-based payment transactions		99,247		79,703
		Allowance on trade receivables		62,617		84,219
		Net realizable value write down (gain) of inventory		(17,016)		525,324
		Loss on disposal of property, plant and equipment		1,608		–
				1,633,276		4,205,539
	Change in non-cash operating working capital:
		Accounts receivable		7,362,660		(1,558,126)
		Inventories		(2,896,447)		3,530,399
		Prepaid expenses and deposits		(147,071)		119,161
		Accounts payable and accrued liabilities		(1,386,766)		(1,598,383)
		Provisions		(460,767)		(2,199,096)
		Deferred revenue		(567,956)		313,072
		Income taxes paid		103,800		–
				2,007,453		(1,392,973)
	Cash used in discontinued operations			–		(3,668,607)
Cash flows from (used in) operating activities				3,640,729		(856,041)
Cash flows from (used in) financing activities:
	Payment of finance lease liability			(9,727)		(52,184)
	Interest received, net of bank charges			39,065		–
	Bank loan repayment			–		(550,000)
	Repayment of debt			–		(1,140,699)
	Issue of share capital, net			240,664		74,811
				270,002		(1,668,072)
	Cash used in discontinued operations			(162,388)		–
Cash flow from (used in) financing activities				107,614		(1,668,072)
Cash flows from (used in) investing activities:
	Acquisition of short-term investments			–		(8,000,000)
	Proceeds from redemption of short-term investments			8,061,686		–
	Purchase of property, plant and equipment			(157,878)		(405,517)
	Intangible asset addition			(1,468,743)		(1,014,956)
	R&D expense reimbursement			444,168		605,311
	Payment of acquisition consideration			(400,000)		(500,000)
	Proceeds from sale of assets, net of cost			–		13,810,736
Cash flows from investing activities				6,479,233		4,495,574
Increase in cash position				10,227,576		1,971,461
Cash and cash equivalents, beginning of year				2,044,278		2,645,605
Cash and cash equivalents, end of period			$	12,271,854	$	4,617,066

SOURCE: Agjunction Inc.

Wes Dittmer, Chief Financial Officer, AgJunction Inc., [phone], [email protected]; Cory Pala, Investor Relations, e.vestor Communications Inc., [phone], [email protected]