Shares of Sonoma Pharmaceuticals (SNOA) dropped as much as 17% on July 15 after the company announced its Q4 results. The stock, however, managed to recover 3.8% in the extended trading session.
Let’s take a look at the company’s financial performance and what has changed in its key risk factors that investors should know.
The company has been restructuring its operations to decrease losses and position itself for growth.
CEO of Sonoma Pharmaceuticals Amy Trombly said, “Last year we consolidated all manufacturing at our factory in Mexico, and ended our contract with Invekra that required us to sell product with low margin. This year, we entered into a partnership agreement with EMC Pharma, LLC for the sale and distribution of our prescription products in the U.S. allowing us to significantly cut our overhead expenses, including the direct sales force, while continuing to sell our high-quality prescription products.”
Owing to the EMC partnership, Sonoma reported a decline in its dermatology business. Moreover, lower revenue from Latin America and $800 thousand revenue adjustment due to overestimation of revenue in Fiscal Year 2020 resulted in a 50% year-over-year decline in revenue to $2.2 million for Q4.
Concurrently, lower headcount and cost reduction initiatives helped the company lower its total operating expenses by 49% to $2 million. Its net loss in Q4 widened to $3.6 million from $1.7 million a year ago. (See Sonoma stock chart on TipRanks)
Now, let’s take a look at the company’s key risk factors.
According to the new Tipranks Risk Factors tool, Sonoma’s main risk category is Finance & Corporate, which accounts for 24% of the total 33 risks identified. The next two major risk factor contributors are Legal & Regulatory and Ability to Sell at 18% each. Since March, the company has added one new risk factor under Legal & Regulatory category.
Sonoma has loaned substantial amounts to Oculus Technologies, its subsidiary in Mexico. Mexican tax law does not allow Sonoma to deduct intercompany interest expenses incurred by Oculus and requires withholding tax on payments remitted to the U.S. At the same time, Sonoma is not able to recognize tax benefits for foreign tax credits for tax purposes in the U.S.
Any failure to pay the intercompany debt, inability to deduct income taxes or apply credits, or a liability for tax payments could negatively impact Sonoma’s business and financial position.
The Finance & Corporate risk factor’s sector average is at 28%, compared to Sonoma’s 24%. Shares are down 13% so far this year.
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