Business Wire | Nov 5, 2020 04:07PM EST

AgroFresh Solutions Reports Results for Third Quarter and First Nine Months of 2020

Nov. 05, 2020

PHILADELPHIA--(BUSINESS WIRE)--Nov. 05, 2020--AgroFresh Solutions, Inc. ("AgroFresh" or the "Company") (Nasdaq: AGFS), a global leader in produce freshness solutions, today announced its financial results for the third quarter ended September 30, 2020.

Jordi Ferre, Chief Executive Officer, commented, "Our northern hemisphere apple season saw a return to a normal seasonal pattern in Europe causing revenues in that region to increase 26.4% in the third quarter versus the prior year period. We faced some challenges in the U.S. that caused revenues to come in below our expectations, including COVID-19 related uncertainty that lowered the propensity for customers to utilize quality enhancing solutions such as Harvista, which was compounded by better than expected labor availability in North America. Having said that, Harvista still generated growth of 7.9% for the quarter and through our strengthened operations and cost optimization strategy, we were able to deliver 21.0% adjusted EBITDA growth for the third quarter."

Mr. Ferre concluded, "As the original innovator and global leader in the near- and post-harvest industry, our platform is solutions-based and service-oriented. Not unexpectedly, competitors have targeted AgroFresh given our leadership position in the market, but as we've seen time and again, their low-price low-touch approach is not sustainable with customers that expect the quality and service that AgroFresh has provided to the marketplace for decades. Our organization is driving towards a technologically-enabled future for our industry and participating as an AgTech innovator utilizing our FreshCloud capabilities as the foundation. We aim to deliver novel and highly customized, confidence-inspiring solutions tailored to unique customer needs that are based on our unmatched depth of agricultural experience, product expertise and data-driven insights."

Financial Highlights for the Third Quarter of 2020

Net sales for the third quarter of 2020 increased 7.8%, to $52.8 million, compared to $49.0 million in the third quarter of 2019. Excluding foreign currency translation impacts, which increased revenue by $1.1 million as compared to the third quarter of 2019, revenue increased 5.6%. The net sales increase was primarily the result of SmartFresh growth in Europe due in part to the normalization of harvest seasonality versus the prior year period, increased traction with Harvista in European markets, and positive contributions from Tecnidex.

Gross profit for the third quarter was $39.3 million, compared to $35.1 million in the prior year period. Gross profit margin increased 280 basis points to 74.4% versus 71.6% in the prior year period. The higher gross margin was primarily the result of the Company's supply chain efficiencies and further supported by price discipline.

Research and development costs were $2.9 million in the third quarter of 2020, compared to $2.6 million in the prior year period. This increase was driven primarily by the timing of projects.

Selling, general and administrative expenses decreased 10.0%, to $13.5 million, in the third quarter of 2020 as compared to $15.0 million in the prior year period. Included in selling, general and administrative expenses were $0.4 million in the current quarter and $1.6 million in the prior year quarter of costs associated with non-recurring items that included litigation, M&A and severance. Excluding these items, selling, general and administrative expenses decreased approximately 1.6% in the third quarter versus the prior year period, which reflects the Company's ongoing cost optimization initiatives.

Third quarter 2020 net loss was $22.4 million, compared to net income of $3.0 million in the prior year period. Tax expense increased by $31.5 million compared to the prior year period primarily due to the Company recording a $24.7 million valuation allowance against carryforwards of cumulative net operating losses related to the change of control for federal income tax purposes associated with the recent PSP investment.

Adjusted EBITDA1 improved by $4.3 million, or 21.0%, to $25.0 million in the third quarter of 2020, compared to $20.6 million in the prior year period.

As of September 30, 2020, cash and cash equivalents were $25.1 million.

Financial Highlights for the First Nine Months of 2020

Net sales for the first nine months of 2020 were $105.8 million, a decrease of 3.0% versus the prior year period. The impacts of foreign currency translation reduced revenue by $2.7 million for the first nine months of 2020; excluding this impact, revenue decreased approximately 0.5%. Our core SmartFresh business on a constant currency basis grew 1.3%. The slight decrease in net sales on a constant currency basis was primarily the result of geographic mix, where the relative strength of the Company's business in the EMEA and APAC regions were more than offset by relative weakness in the North America and Latin America regions.

Gross profit margin was 73.1% for the year-to-date period, which compares to 71.1% in the year-ago period, an improvement of 200 basis points. The year over year improvement was a result of the supply chain cost optimizations that were implemented at the end of 2019 and are expected to carry through the balance of 2020.

Research and development expenses decreased $1.3 million, to $8.4 million, in the first nine months of 2020 compared to the prior year period, driven primarily by the timing of projects.

Selling, general and administrative expenses decreased 15.1%, to $39.9 million, for the nine months ended September 30, 2020 compared to the prior year period. There were non-recurring costs associated with M&A, litigation, refinancing and severance in the amount of $2.8 million in the current year period and $6.9 million in the prior year period. Excluding these items, selling general and administrative expenses decreased approximately 7.6% versus the same period last year driven by ongoing cost optimization initiatives, and to a lesser extent reflect the temporary decrease in travel and other miscellaneous expenses as a result of the COVID pandemic.

Net loss was $42.9 million in the first nine months of 2020, compared to net loss of $31.9 million in the prior year period. Tax expense increased by $35.2 million compared to the prior year period primarily due to the Company recording a $24.7 million valuation allowance against carryforwards of cumulative net operating losses related to the change of control for federal income tax purposes associated with the recent PSP investment.

Adjusted EBITDA improved by $4.7 million, or 14.8%, to $36.4 million in the first nine months of 2020 as compared to the prior year period. Adjusted EBITDA margin improved 530 basis points to 34.4% versus the prior year. The increase was driven by lower operating expenses, after adjusting for non-recurring items.

_________________^1 Adjusted EBITDA is a non-GAAP financial measure. Please see the informationunder "Non-GAAP Financial Measures" below for a description of Adjusted EBITDAand the table at the end of this press release for a reconciliation of thisNon-GAAP financial measure to GAAP results.

Conference Call

The Company will host a conference call and webcast today at 4:30 p.m. ET where members of the executive management team will discuss these results with additional comments and details. The conference call and supplemental earnings presentation will be available live over the internet through the "Events & Presentations" page of the Investor Relations section of the Company's website at www.agrofresh.com. To participate on the live call, listeners in the United States may dial 877-407-4018 and international listeners may dial 201-689-8471.

A replay of the conference call will be archived on the Company's website and telephonic playback will be available from 7:30 p.m. ET, November 5, 2020 through November 19, 2020. Listeners in the United States may dial 844-512-2921 and international listeners may dial 412-317-6671. The passcode is 13710418.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance, including incentive bonuses and for bank covenant reporting. Management believes that these measures enhance a reader's understanding of the operating and financial performance of the Company and facilitate a better comparison between fiscal periods. EBITDA excludes income taxes, interest expense and depreciation and amortization, whereas Adjusted EBITDA further excludes items that are non-cash, infrequent, or non-recurring, such as share-based compensation, severance, litigation and M&A related costs, to provide further meaningful information for evaluation of the Company's performance.

The Company does not intend for the non-GAAP financial measures contained in this release to be a substitute for any GAAP financial information. Readers of this press release should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of the non-GAAP financial measures EBITDA and Adjusted EBITDA to the most comparable GAAP measure are provided in the table at the end of this press release.

About AgroFresh

AgroFresh (Nasdaq: AGFS) is a leading global innovator and provider of science-based solutions, data-driven technologies and experience-backed services to enhance the quality and extend the shelf life of fresh produce. For more than 20 years, AgroFresh has been revolutionizing the apple industry and has launched new innovative solutions in a variety of fresh produce categories from bananas to cherries and citrus to pears. AgroFresh supports growers, packers and retailers by supplying post-harvest solutions across the industry that enhance crop values while conserving our planet's resources and reducing global food waste.

Visit www.agrofresh.com to learn more.

(tm)Trademark of AgroFresh Inc.

Forward-Looking Statements

In addition to historical information, this release may contain "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this release that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements and are identified with, but not limited to, words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions (or the negative versions of such words or expressions). Forward-looking statements include, without limitation, information concerning the Company's possible or assumed future results of operations, including all statements regarding financial guidance, anticipated future growth, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's management's control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks include, without limitation, the risk of increased competition, the ability of the business to grow and manage growth profitably, risks associated with acquisitions and investments, changes in applicable laws or regulations, conditions in the global economy, including the effects of the coronavirus outbreak, and the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors. Additional risks and uncertainties are identified and discussed in the Company's filings with the SEC, which are available at the SEC's website at www.sec.gov.

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

September December 31, 30, 2020 2019



ASSETS

Current Assets:

Cash and cash equivalents $ 25,149 $ 29,288

Accounts receivable, net of allowance for doubtful 69,580 68,634 accounts of $2,025 and $2,232, respectively

Inventories 24,444 22,621

Other current assets 17,265 11,802

Total Current Assets 136,438 132,345

Property and equipment, net 13,275 13,177

Goodwill 6,605 6,323

Intangible assets, net 599,236 631,369

Deferred income tax assets 10,502 10,317

Other assets 11,449 12,161

TOTAL ASSETS $ 777,505 $ 805,692



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $ 13,784 $ 15,105

Current portion of long-term debt 3,316 4,675

Income taxes payable 7,629 5,648

Accrued expenses and other current liabilities 26,665 24,350

Total Current Liabilities 51,394 49,778

Long-term debt 264,850 398,064

Other noncurrent liabilities 5,989 7,246

Deferred income tax liabilities 35,577 16,574

Total Liabilities 357,810 471,662



Commitments and contingencies (see Note 19)

Series B convertible preferred stock, par value$0.0001; 150,000 shares authorized, 150,000 and 0 140,684 - shares designated and outstanding at September 30,2020 and December 31, 2019, respectively

Stockholders' Equity:

Common stock, par value $0.0001; 400,000,000 sharesauthorized, 53,054,960 and 51,839,527 shares issuedand 52,393,579 and 51,178,146 shares outstanding at 5 5 September 30, 2020 and December 31, 2019,respectively

Preferred stock, par value $0.0001; 1 shareauthorized and outstanding at September 30, 2020 - - and December 31, 2019, respectively

Treasury stock, par value $0.0001; 661,381 sharesat September 30, 2020 and December 31, 2019, (3,885 ) (3,885 )respectively

Additional paid-in capital 559,037 561,006

Accumulated deficit (241,710 ) (199,621 )

Accumulated other comprehensive loss (41,164 ) (31,060 )

Total AgroFresh Stockholders' Equity 272,283 326,445

Non-controlling interest 6,728 7,585

Total Stockholders' Equity 279,011 334,030

TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND $ 777,505 $ 805,692 STOCKHOLDERS' EQUITY

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

September 30, 2020

Three Months Ended

September 30, 2019

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2019

Net sales

$

52,770

$

48,972

$

105,775

$

109,095

Cost of sales (excluding amortization of intangibles, shown separately below)

13,511

13,892

28,492

31,516

Gross profit

39,259

35,080

77,283

77,579

Research and development expenses

2,852

2,566

8,389

9,720

Selling, general, and administrative expenses

13,494

14,998

39,925

47,044

Amortization of intangibles

10,973

11,754

32,866

35,136

Impairment of long lived assets

-

-

-

992

Change in fair value of contingent consideration

-

(229

)

-

128

Grant income

-

-

(2,974

)

-

Operating income (loss)

11,940

5,991

(923

)

(15,441

)

Other income (expense)

96

(81

)

1,596

(119

)

Debt modification and extinguishment expenses

(5,028

)

-

(5,028

)

-

Gain (loss) on foreign currency exchange

1,390

54

2,466

(2,884

)

Interest expense, net

(4,922

)

(8,606

)

(18,401

)

(26,021

)

Gain (loss) before income taxes

3,476

(2,642

)

(20,290

)

(44,465

)

Income taxes expense (benefit)

25,857

(5,653

)

22,656

(12,530

)

Net (loss) income including non-controlling interests

(22,381

)

3,011

(42,946

)

(31,935

)

Less: Net loss attributable to non-controlling interests

(494

)

(278

)

(857

)

(336

)

Net (loss) income attributable to AgroFresh Solutions, Inc

$

(21,887

)

$

3,289

$

(42,089

)

$

(31,599

)

Less: Dividends on convertible preferred stock

4,400

-

4,400

-

(Loss) income attributable to AgroFresh Solutions, Inc. common stockholders

(26,287

)

3,289

(46,489

)

(31,599

)

Net (loss) income per share:

Basic

$

(0.52

)

$

0.06

$

(0.92

)

$

(0.64

)

Diluted

$

(0.52

)

$

0.06

$

(0.92

)

$

(0.64

)

Weighted average shares outstanding:

Basic

51,001,852

50,227,590

50,765,829

50,138,835

Diluted

51,001,852

50,288,304

50,765,829

50,138,835

Non-GAAP Measures

The following table sets forth the non-GAAP financial measures of EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance (including incentive bonuses and for bank covenant reporting), are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The following is a reconciliation between the non-GAAP financial measures of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure, net loss:

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2020 2019 2020 2019

Net sales $ 52,770 $ 48,972 $ 105,775 $ 109,095

Cost of sales(excludingamortization ofintangibles, 13,511 13,892 28,492 31,516 shownseparatelybelow)

Gross profit 39,259 35,080 77,283 77,579

Research anddevelopment 2,852 2,566 8,389 9,720 expenses

Selling,general, and 13,494 14,998 39,925 47,044 administrativeexpenses

Amortization of 10,973 11,754 32,866 35,136 intangibles

Impairment oflong lived - - - 992 assets

Change in fairvalue of - (229 ) - 128 contingentconsideration

Grant income - - (2,974 ) -

Operating 11,940 5,991 (923 ) (15,441 )income (loss)

Other income 96 (81 ) 1,596 (119 )(expense)

Debtmodificationand (5,028 ) - (5,028 ) - extinguishmentexpenses

Gain (loss) onforeign 1,390 54 2,466 (2,884 )currencyexchange

Interest (4,922 ) (8,606 ) (18,401 ) (26,021 )expense, net

Gain (loss)before income 3,476 (2,642 ) (20,290 ) (44,465 )taxes

Income taxesexpense 25,857 (5,653 ) 22,656 (12,530 )(benefit)

Net (loss)incomeincluding (22,381 ) 3,011 (42,946 ) (31,935 )non-controllinginterests

Less: Net lossattributable to (494 ) (278 ) (857 ) (336 )non-controllinginterests

Net (loss)incomeattributable to $ (21,887 ) $ 3,289 $ (42,089 ) $ (31,599 )AgroFreshSolutions, Inc

Less: Dividendson convertible 4,400 - 4,400 - preferred stock

(Loss) incomeattributable toAgroFresh (26,287 ) 3,289 (46,489 ) (31,599 )Solutions, Inc.commonstockholders



Net (loss)income per share:

Basic $ (0.52 ) $ 0.06 $ (0.92 ) $ (0.64 )

Diluted $ (0.52 ) $ 0.06 $ (0.92 ) $ (0.64 )

Weightedaverage shares outstanding:

Basic 51,001,852 50,227,590 50,765,829 50,138,835

Diluted 51,001,852 50,288,304 50,765,829 50,138,835

Non-GAAP Measures

The following table sets forth the non-GAAP financial measures of EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance (including incentive bonuses and for bank covenant reporting), are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The following is a reconciliation between the non-GAAP financial measures of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure, net loss:

Three Three Nine Months Nine Months Months Months Ended Ended(in thousands) Ended Ended September September September September 30, 2020 30, 2019 30, 2020 30, 2019

GAAP net (loss) incomeincluding non-controlling $ (22,381 ) $ 3,011 $ (42,946 ) $ (31,935 )interests

Expense (benefit) for income 25,857 (5,653 ) 22,656 (12,530 )taxes

Interest expense ^(1) 4,922 8,606 18,401 26,021

Depreciation and amortization 11,630 12,356 34,775 36,692

Non-GAAP EBITDA $ 20,028 $ 18,320 $ 32,886 $ 18,248

Share-based compensation 943 959 2,705 2,111

Severance related costs ^(2) 356 344 430 1,040

Other non-recurring costs ^ - 1,297 2,383 6,305 (3)

(Gain) loss on foreign (1,390 ) (54 ) (2,466 ) 2,884 currency exchange ^(4)

Debt modification and 5,028 - 5,028 - extinguishment costs

Mark-to-market adjustments, - (229 ) - 128 net ^(5)

Impairment of intangible - - - 992 assets^ (6)

Grant income - - (2,974 ) -

Litigation recovery - - (1,600 ) -

Non-GAAP Adjusted EBITDA $ 24,965 $ 20,637 $ 36,392 $ 31,708

(1)

Interest on debt, accretion for debt discounts, debt issuance costs and contingent consideration.

(2)

Severance costs related to ongoing cost optimization initiatives.

(3)

Costs related to certain professional and other infrequent or non-recurring fees, including those associated with transition service agreement, litigation and M&A related fees.

(4)

(Gain) loss on foreign currency exchange relates to net losses and gains resulting from transactions denominated in a currency other than the entity's functional currency.

(5)

Non-cash adjustment to the fair value of contingent consideration, including the TRA and contingent payment related to the Tecnidex acquisition.

(6)

Impairment of intangible assets related to software.

The following is a reconciliation between net sales on a non-GAAP constant currency basis to GAAP net sales:

(1) Interest on debt, accretion for debt discounts, debt issuance costs and contingent consideration.

(2) Severance costs related to ongoing cost optimization initiatives.

Costs related to certain professional and other infrequent or(3) non-recurring fees, including those associated with transition service agreement, litigation and M&A related fees.

(Gain) loss on foreign currency exchange relates to net losses and gains(4) resulting from transactions denominated in a currency other than the entity's functional currency.

Non-cash adjustment to the fair value of contingent consideration,(5) including the TRA and contingent payment related to the Tecnidex acquisition.

(6) Impairment of intangible assets related to software.

The following is a reconciliation between net sales on a non-GAAP constant currency basis to GAAP net sales:

Three Three Nine Months Nine Months Months Months Ended Ended(in thousands) Ended Ended September September September September 30, 2020 30, 2019 30, 2020 30, 2019

GAAP net sales $ 52,770 $ 48,972 $ 105,775 $ 109,095

Impact from changes inforeign currency exchange (1,064 ) - 2,738 - rates

Non-GAAP constant currency $ 51,706 $ 48,972 $ 108,513 $ 109,095 net sales ^(1)

(1) The company provides net sales on a constant currency basis to enhance investors' understanding of underlying business trends and operating performance, by removing the impact of foreign currency exchange rate fluctuations. The impact from foreign currency, calculated on a constant currency basis, is determined by applying prior period average exchange rates to current year results.

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CONTACT: For AgroFresh Solutions, Inc. Jeff Sonnek - Investor Relations ICR Inc. Jeff.Sonnek@icrinc.com 646-277-1263