News Column

AgJunction Reports 2014 Q2 Results

August 13, 2014

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 +1 (647) 427-7450 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 +1(416) 849-0833 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.


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