AgJunction Reports 2015 Q2 Results

HIAWATHA, KS, Aug. 17, 2015 /CNW/ - (TSX: AJX) -- On August 14, 2015 AgJunction filed to SEDAR financial results for the second quarter ended June 30, 2015.  All currency amounts are expressed in U.S. dollars.

Novariant Merger

In a press release dated March 16, 2015, AgJunction Inc. ("AgJunction" or the "Company") and Novariant, Inc. ("Novariant") announced that they had entered into an agreement under which AgJunction would acquire Novariant through a merger transaction. Complete details of the terms of the transaction are set out in the agreement filed by AgJunction under its profile on SEDAR on March 26, 2015.

Novariant is a premier provider of advanced steering solutions for precision agriculture. Based in Silicon Valley, Novariant's steering solutions are used today in over 60 countries. With approximately 55 employees worldwide, Novariant generated revenues of approximately $30 million in 2014. Combined, the two companies establish a pre-eminent position in automated steering and machine control technologies worldwide, combining product portfolios, OEM customers, and leveraging industry-leading intellectual property. As global machine manufacturers increasingly target the integration of auto-steer technologies at the factory level, the combined company will bring advanced levels of machine automation to both current and future OEM clients faster and at lower cost.

Upon closing of the transaction, the combined company will have approximately 200 employees worldwide. The combined company plans to maintain offices in California, Kansas, Arizona, Canada and Australia.  The transaction also brings changes at the board and management level as outlined in the March 16, 2015 announcement.

Fairness Hearing Date and Approvals

The transaction has been progressing and the California Department of Business Oversight has set a date of August 27, 2015 to hold the Fairness Hearing to determine whether to grant AgJunction a permit in connection with the transaction. If the permit is granted, and the other required conditions are met, including approval by the shareholders of Novariant, the Company intends to hold a shareholders meeting to approve certain matters in connection with the transaction on or about September 30, 2015. Further to AgJunction's press release on April 29, 2015, AgJunction has received the approval of the Toronto Stock Exchange (the "TSX") to further extend the deadline to hold its annual meeting of shareholders from August 31, 2015 to September 30, 2015 and has received an order from the Court of Queen's Bench of Alberta to extend the deadline to hold the meeting of shareholders under the Business Corporations Act (Alberta).  With a view to reducing the expense and inconvenience to shareholders associated with holding two separate meetings, the Company sought the further extension from the TSX and the order from the Court to allow shareholders to consider annual matters and certain matters related to the transaction at one meeting.  A press release will be issued when the record date and meeting date have been determined.

Completion of the transaction is anticipated in October 2015, subject to a number of conditions, including receipt of the permit from the California Department of Business Oversight, approval of the shareholders of Novariant, approval of the shareholders of AgJunction, and receipt of customary regulatory approvals, including the approval of the TSX. In connection with the above, the Company and Novariant have agreed to extend the outside date in the merger agreement for the transaction to October 31, 2015.

At closing of the transaction, AgJunction shares will be issued to shareholders of Novariant in exchange for all of the outstanding shares of Novariant. After giving effect to the issuance of such AgJunction shares, AgJunction will have approximately 123.7 million fully diluted shares outstanding, of which approximately 49.5 million shares will be held by the former shareholders of Novariant, representing approximately 40.0 % of the combined company. Post transaction, directors, officers and other insiders will hold approximately 30.6 % of the combined company.

Additional information in respect of the transaction will be forthcoming in the information circular which will be provided to AgJunction shareholders in connection with the meeting to approve certain matters in connection with the transaction.

Second Quarter Financial Review

For the six months ended June 30, 2015, the Company reported revenue of $7.7 million, a 25% decrease from $10.3 million in the second quarter of 2014.  Lower revenue for the quarter is related to ongoing softness in the aftermarket agricultural retail space, and lower food commodity prices, causing farmers to delay investment and purchasing decisions.  These conditions drove the drop in the Air ($1.1M) and Outback ($1.0M) business units.  The Agronomy Services business, which had sales of $0.6M in Q2 of 2014, was sold April 1 2015, so it did not generate any Q2 2015 sales.   United States and Canadian combined revenues were down by 51% from the second quarter of 2014, driven largely by the Company's Air product line which was down by 51% year-over-year in the US.

In the US, net farm income has been declining since 2013, and according to the February 2015 US Department of Agriculture ("USDA") report, a further decline of 32% is forecasted for 2015. Lower crop and livestock receipts are the main drivers of the 2015 decrease in net farm income.  The rate of growth in US farm assets is also forecasted to slow in 2015 compared to recent years as a result of lower net income, leading to less capital investment and a slight decline in farmland values.

"In considering how long this down cycle may last, we watch new and used inventory at the dealer level charted through time," said Rick Heiniger, President and CEO.  "Factory output is lower now so the correction is underway. Dealer inventories, while still high, have been slowly declining since April, 2014. I believe normality will be achieved on a gradual basis."

Sales by business unit for the second quarter of June 30, 2015 and 2014 are as follows:

(000's)	Q2 2015	Q2 2014	Change
Outback	$2,611	$3,640	(28.3%)
OEM	4,120	4,036	2.1%
Air	1,010	2,064	(51.1%)
Agronomy Services	-	558	(100.0%)
Total	$7,741	$10,298	(24.8%)

On April 1, 2015, AgJunction sold its Agronomy Services operations for $2.4 million in cash.  Divesting the Agronomy Services division was aligned with AgJunction's strategy to focus all of its resources on delivering the most accurate, innovative and reliable steering solutions. The proposed merger transaction with Novariant aligns to this strategy.

Sales by geographic region for the second quarter of June 30, 2015 and 2014 are as follows:

(000's)	Q2 2015	Q2 2014	Change
North America	$3,605	$7,300	(50.6%)
Europe	3,374	2,168	55.6%
Australia	229	242	(5.5%)
Other	533	588	(9.4%)
Total	$7,741	$10,298	(24.8%)

United States and Canadian combined revenues were down by 51% from the second quarter of 2014 generally characterized with ongoing softness in the aftermarket agricultural retail space. European revenues increased 56% due to increased demand from OEM customers. Sales to Australia and other markets, including South America and Asia, declined 5% and 9%, respectively.

Consolidated Q2 2015 gross margin was $3.2 million, or 42% of revenue, versus $5.4 million, or 53% of revenue, in Q2 2014. Lower gross margin for the quarter was due to a higher percentage of OEM revenue in the sales mix along with a 2014 decrease in the estimated warranty reserve for the Outback and Air product lines.

Total operating expenses fell by 36% to $3.8 million, as compared to $6.0 million in the second quarter of 2014. Research and development expenditures of $0.9 million, declined by $0.7 million, or 45%, compared to $1.6 million during the second quarter of 2014, which decreased $0.8M due to the sale of agronomy services.  Sales and marketing expenses of $1.2 million, declined by $0.3 million, or 20%, compared to $1.5 million during the second 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, decreasing from $2.8 million, or 39%, in 2014, due to the Company incurring litigation costs in 2014 of $1.4M relating to a lawsuit brought against a competitor believed to be infringing on the Company's propriety software and intellectual property rights.  The infringement did not involve the Company's steering patent portfolio.

On April 1, 2015, the Company sold the business assets associated with its Agronomy Services operations to EFC Systems for cash of $2.4 million. The sale of these operations resulted in a $1.6 million gain for the quarter. For the second quarter ended June 30, 2015, the Company reported net income of $1.0 million, or $0.01 per share (basic and diluted), compared to a net loss of $0.6 million, or ($0.01) per share (basic and diluted), in the second quarter of 2014. 

Six Month Financial Review

For the six months ended June 30, 2015, AgJunction reported revenues of $19.8 million compared to $25.2 million for the same period in 2014.  Gross margin for the first six months of 2014 was $8.8 million, or 44%, versus $12.3 million, or 49%, in the comparable period. Operating expenses, excluding restructuring, have declined $2.8 million, or 24%, on a year-over-year basis primarily due to cost reductions within research and development, sales and marketing, and in general and administrative expenses. 

For the six months ended June 30, 2014, the Company generated net income from continuing operations of $1.5 million, or $0.02 per share, (basic and diluted), compared to a net income from continuing operations of $0.7 million, or $0.01 per share, the first half of 2014.

At the end of the second quarter of 2015, the Company held cash of $12.6 million compared to $11.2 million at the end of 2014. Working capital was $24.5 million, up from $22.4 million at December 31, 2014. 

At June 30, 2015, AgJunction had 72,322,063 common shares outstanding.

Conference Call:  August 17, 2015 at 11:00AM ET

A conference call and webcast has been scheduled for today 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] approximately 10 minutes before the conference call and provide Conference ID: 95852055.  A recording of the call will be available through October 31, 2015. Please dial [phone] and enter passcode 95852055 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, Inc. 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® and Satloc®. The Company is headquartered in Hiawatha, Kansas, with facilities in Arizona, 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.

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,
		2015		2014
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	12,608,149	$	11,223,755
	Accounts receivable, net of bad debt provisions of $240,803 and $645,059 as of June 30, 2015 and December 31, 2014, respectively		3,324,116		5,665,108
	Inventories		11,395,996		9,692,923
	Prepayments and deposits		602,549		947,931
			27,930,810		27,529,717
Property, plant and equipment			2,593,273		2,808,052
Intangible assets			7,487,715		7,772,064
Goodwill			5,374,519		5,374,519
		$	43,386,317	$	43,484,352
Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable and accrued liabilities	$	2,734,405	$	2,795,216
	Provisions		282,909		302,987
	Deferred revenue		450,603		2,016,183
	Finance lease		8,119		13,918
			3,476,036		5,128,304
Deferred revenue			314,243		343,245
Finance Lease			–		1,160
Shareholders' equity:
	Share capital		122,467,464		122,467,464
	Equity reserve		5,202,650		5,150,466
	Accumulated deficit		(88,074,076)		(89,606,287)
			39,596,038		38,011,643
		$	43,386,317	$	43,484,352

AgJunction Inc. Condensed Consolidated Statements of Comprehensive Income and Loss
(Unaudited – expressed in U.S. dollars)
		Three months ended					Six months ended
		June 30,					June 30,
		2015		2014			2015		2014
Sales		$	7,741,075	$	10,298,426		$	19,837,215	$	25,227,019
Cost of sales			4,495,913		4,806,330			11,068,489		12,885,267
			3,245,162		5,492,096			8,768,726		12,341,752
Expenses:
	Research and development		895,948		1,643,371			2,408,045		3,605,941
	Sales and marketing		1,234,737		1,545,051			2,765,578		3,244,588
	General and administrative		1,689,166		2,773,004			3,543,094		4,641,842
			3,819,851		5,961,426			8,716,717		11,492,371
Operating income (loss)			(574,689)		(469,330)			52,009		849,381
Foreign exchange (gain) loss			2,112		85,334			106,034		114,239
Interest and other loss (income)			(924)		(332)			(1,893)		(5,400)
(Gain) loss on disposal of property, plant and equipment			38,876		(8,665)			38,876		1,608
(Gain) on sale of other assets, net of liabilities			(1,623,219)		–			(1,623,219)		–
			(1,583,155)		76,337			(1,480,202)		110,447
Income (loss) before income taxes			1,008,466		(545,667)			1,532,211		738,934
Income tax expense			–		41,700			–		62,989
Net income (loss)			1,008,466		(587,367)			1,532,211		675,945
Other comprehensive income			–		–			–		–
Total comprehensive income (loss)		$	1,008,466	$	(587,367)		$	1,532,211	$	675,945
Earnings per share:
	Basic and diluted income (loss) per share	$	0.01	$	(0.01)		$	0.02	$	0.01

AgJunction Inc. Condensed Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)
		Share	Equity	Accumulated	Total	Number of
		capital	reserve	Deficit	equity	shares
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
Balance at December 31, 2014		122,467,464	5,150,466	(89,606,287)	38,011,643	72,322,063
	Comprehensive income	–	–	1,532,211	1,532,211	–
	Issue of common shares for business acquisition, net of share issue cost	–	–	–	–	–
	Share-based payment transactions	–	52,184	–	52,184	–
	Stock options exercised	–	–	–	–	–
	Transfer from equity reserve on exercise of stock options	–	–	–	–	–
Balance at June 30, 2015 (unaudited)		$ 122,467,464	$ 5,202,650	$ (88,074,076)	$ 39,596,038	72,322,063

AgJunction Inc. Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2015 and 2014 (Unaudited - expressed in U.S. dollars)
			2015		2014
Cash flows from (used in) operating activities:
	Net income		$	1,532,211	$	675,945
	Items not involving cash:
		Depreciation		259,514		294,944
		Amortization		283,691		515,931
		Share-based payment transactions		52,184		99,247
		Allowance on trade receivables		64,513		62,617
		Net realizable value write down (gain) of inventories		228,001		(17,016)
		Loss on disposal of property, plant and equipment		38,876		1,608
		(Gain) on sale of other assets, net of liabilities		(1,623,219)		–
				835,771		1,633,276
	Change in non-cash operating working capital:
		Accounts receivable		2,276,479		7,362,660
		Inventories		(1,976,399)		(2,896,447)
		Prepaid expenses and deposits		345,382		(147,071)
		Accounts payable and accrued liabilities		(33,591)		(1,386,766)
		Provisions		(20,078)		(460,767)
		Deferred revenue		(688,594)		(567,956)
		Income taxes paid		–		103,800
				(96,801)		2,007,453
Cash flows from (used in) operating activities				738,970		3,640,729
Cash flows from (used in) financing activities:
	Payment of finance lease liability			(6,959)		(9,727)
	Interest received, net of bank charges			–		39,065
	Issue of share capital, net			–		240,664
				(6,959)		270,002
	Cash used in discontinued operations			–		(162,388)
Cash flow from (used in) financing activities				(6,959)		107,614
Cash flows from (used in) investing activities:
	Proceeds from redemption of short-term investments			–		8,061,686
	Purchase of property, plant and equipment			(121,157)		(157,878)
	Intangible asset addition			(1,764,870)		(1,468,743)
	R&D expense reimbursement			115,494		444,168
	Payment of acquisition consideration			–		(400,000)
	Proceeds from sale of division			2,422,916		–
Cash flows from investing activities				652,383		6,479,233
Increase (decrease) in cash position				1,384,394		10,227,576
Cash and cash equivalents, beginning of year				11,223,755		2,044,278
Cash and cash equivalents, end of period			$	12,608,149	$	12,271,854

SOURCE Agjunction Inc.

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