Business Wire | Aug 10, 2020 04:05PM EDT

AgroFresh Solutions Reports Results for Second Quarter and First Half of 2020

Aug. 10, 2020

PHILADELPHIA--(BUSINESS WIRE)--Aug. 10, 2020--AgroFresh Solutions, Inc. ("AgroFresh" or the "Company") (Nasdaq: AGFS), a global leader in produce freshness solutions, today announced its financial results for the second quarter ended June 30, 2020.

"I'm pleased with our team's resolve during the first half of 2020. We provided uninterrupted service to our southern hemisphere customers amid a challenging environment due to the global pandemic, which impacted our flower business as well as caused softness in some key local currencies. The cost optimization initiatives we launched last year helped insulate our business from the pandemic's broader effects and drove another strong quarter of year-over-year improvement in selling, general and administrative expense, which in turn generated operating leverage and adjusted EBITDA growth during the second quarter of 2020 as compared to the prior year period. For the first half of 2020, adjusted EBITDA margin improved 310 basis points, despite the decline in revenues during our southern hemisphere season due to the aforementioned headwinds," commented Jordi Ferre, Chief Executive Officer. "We are carefully managing the business through this uncertain environment and with the closing of our comprehensive refinancing on July 27, we have reduced our balance sheet leverage by approximately two turns on a pro-forma basis as of June 30, 2020. This transaction returns our business to a position of strength where we have the available capital and flexibility to pursue our diversification and growth initiatives. We are well positioned for the coming northern hemisphere season during the second half of 2020, with the resources in place to provide the necessary products and service to help our customers navigate this dynamic environment and maximize the value of their crops."

Financial Highlights for the Second Quarter of 2020

Net sales for the second quarter of 2020 decreased 5.7%, to $20.0 million, compared to $21.2 million in the second quarter of 2019. Excluding foreign currency translation impacts, which reduced revenue by $1.7 million as compared to the second quarter of 2019, revenue increased 2.4%. The net sales increase on a constant currency basis was primarily the result of growth of SmartFresh in the Asia-Pacific region, as well as positive contributions from the Company's SmartFresh diversification strategy.

Gross profit for the second quarter was $13.5 million compared to $14.9 million in the prior year period. Gross profit margin decreased 260 basis points to 67.7% versus 70.3% in the prior year period. The lower gross margin was primarily the result of negative fixed cost leverage on lower reported sales volumes, inventory valuation reserves and revenue mix.

Research and development costs were $2.9 million in the second quarter of 2020, compared to $3.3 million in the prior year period. This decrease was driven primarily by the timing of projects.

Selling, general and administrative expenses decreased 21.2%, to $12.7 million in the second quarter of 2020 as compared to $16.1 million in the prior year period. Included in selling, general and administrative expenses were $0.7 million in the current quarter and $2.0 million in the prior year quarter of costs associated with non-recurring items that included M&A, litigation, refinancing and severance. Excluding these items, selling general and administrative expenses decreased approximately 15.0% in the second quarter versus the prior year period, which reflects the Company's ongoing cost optimization initiatives, as well as a temporary decrease in travel and other miscellaneous expenses related to the COVID pandemic.

Second quarter 2020 net loss was $16.8 million, compared to net loss of $22.4 million in the prior year period.

Adjusted EBITDA(1) was $0.2 million in the second quarter of 2020, compared to ($1.4) million in the prior year period.

As of June 30, 2020, cash and cash equivalents were $35.6 million.

Financial Highlights for the First Half of 2020

Financial results for the first half of 2020 largely reflect the completion and performance of the business for the southern hemisphere season. Net sales for the first half of 2020 were $53.0 million, a decrease of 11.8% versus the prior year period. The impacts of foreign currency translation reduced revenue by $3.8 million for the first half of 2020; excluding this impact, revenue decreased approximately 5.5%. The net sales decrease on a constant currency basis was primarily the result of adverse harvest conditions experienced in key Southern hemisphere markets, such as Brazil, Chile, Argentina and Australia which impacted harvest timing and yields, along with change in demand patterns from customers.

Gross profit margin was 71.7% for the year-to-date period, which compares to 70.7% in the year-ago period, which was in line with the Company's expectation. The year over year change 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 $1.6 million to $5.5 million in the first half of 2020 driven primarily by the timing of projects.

Selling, general and administrative expenses decreased 17.5% to $26.4 million for the six months ended June 30, 2020. There were non-recurring costs associated with M&A, litigation, refinancing and severance in the amount of $2.5 million in the current year and $5.2 million in the prior year period. Excluding these items, selling general and administrative expenses decreased approximately 10.5% 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 $20.6 million in the first half of 2020, compared to net loss of $34.9 million in the prior year period.

Adjusted EBITDA(1) improved by $0.4 million, or 3.2%, to $11.4 million in the first half of 2020 as compared to the prior year period. Adjusted EBITDA margin improved 310 basis points to 21.6% 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 information under "Non-GAAP Financial Measures" below for a description of Adjusted EBITDA and the table at the end of this press release for a reconciliation of this Non-GAAP financial measure to GAAP results.

Comprehensive Refinancing Completed

Subsequent to the end of the second quarter, on July 27, 2020 the Company announced the successful closing of its comprehensive refinancing comprised of the previously-announced $150 million convertible preferred equity investment by a fund affiliated with Paine Schwartz Partners, LLC ("Paine Schwartz" or "PSP") and the amendment and extension of the Company's senior secured credit facilities.

AgroFresh entered into a revised credit agreement whereby the Company's term loan maturity has been extended to December 31, 2024. With the proceeds of the PSP convertible preferred equity investment, the principal outstanding on AgroFresh's term loan has been reduced to $275 million, resulting in a decline in the Company's net debt-to-adjusted EBITDA ratio from approximately 5.5x to 3.6x on a pro-forma basis for the twelve months ended June 30, 2020. In addition, the Company's revolving credit facility was doubled in size from $12.5 million to $25.0 million and its maturity was extended to June 30, 2024.

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, August 10, 2020 through August 24, 2020. Listeners in the United States may dial 844-512-2921 and international listeners may dial 412-317-6671. The passcode is 13707334.

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)



June 30, December 2020 31, 2019



ASSETS

Current Assets:

Cash and cash equivalents $ 35,619 $ 29,288

Accounts receivable, net of allowance for doubtful 38,418 68,634 accounts of $2,005 and $2,232, respectively

Inventories 25,119 22,621

Other current assets 16,740 11,802

Total Current Assets 115,896 132,345

Property and equipment, net 12,890 13,177

Goodwill 6,351 6,323

Intangible assets, net 609,545 631,369

Deferred income tax assets 10,564 10,317

Other assets 12,191 12,161

TOTAL ASSETS $ 767,437 $ 805,692



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $ 15,182 $ 15,105

Current portion of long-term debt 4,776 4,675

Income taxes payable 6,607 5,648

Accrued expenses and other current liabilities 19,460 24,350

Total Current Liabilities 46,025 49,778

Long-term debt 397,898 398,064

Other noncurrent liabilities 6,565 7,246

Deferred income tax liabilities 11,677 16,574

Total Liabilities 462,165 471,662



Commitments and contingencies (see Note 19)

Stockholders' Equity:

Common stock, par value $0.0001; 400,000,000 sharesauthorized, 52,875,089and 51,839,527 shares issued and 52,213,708 and 5 5 51,178,146 outstanding at June 30, 2020 and December31, 2019, respectively

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

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

Additional paid-in capital 562,584 561,006

Accumulated deficit (219,823) (199,621)

Accumulated other comprehensive loss (40,831) (31,060)

Total AgroFresh Stockholders' Equity 298,050 326,445

Non-controlling interest 7,222 7,585

Total Equity 305,272 334,030

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 767,437 $ 805,692

AgroFresh Solutions, Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except share and per share data)

Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Net sales $ 19,982 $ 21,183 $ 53,005 $ 60,123

Cost of sales(excluding amortization 6,453 6,289 14,981 17,624 of intangibles, shownseparately below)

Gross profit 13,529 14,894 38,024 42,499

Research and 2,895 3,257 5,537 7,154 development expenses

Selling, general, and 12,722 16,148 26,431 32,046 administrative expenses

Amortization of 10,936 11,766 21,893 23,382 intangibles

Impairment of long - 992 - 992 lived assets

Change in fair value ofcontingent - 167 - 357 consideration

Grant income (2,974) - (2,974) -

Operating loss (10,050) (17,436) (12,863) (21,432)

Other (expense) income (7) (26) 1,500 (38)

Gain (loss) on foreign 449 (2,519) 1,076 (2,938) currency exchange

Interest expense, net (6,513) (8,670) (13,479) (17,415)

Loss before income (16,121) (28,651) (23,766) (41,823) taxes

Income taxes expense 630 (6,290) (3,201) (6,877) (benefit)

Net loss includingnon-controlling (16,751) (22,361) (20,565) (34,946) interests

Less: Net lossattributable to (197) (92) (363) (58) non-controllinginterests

Net loss attributableto AgroFresh Solutions, $ (16,554) $ (22,269) $ (20,202) $ (34,888) Inc



Net loss per share:

Basic $ (0.33) $ (0.45) $ (0.41) $ (0.70)

Diluted $ (0.33) $ (0.45) $ (0.41) $ (0.70)

Weighted average shares outstanding:

Basic 50,758,273 50,146,513 50,646,522 50,094,822

Diluted 50,758,273 50,146,513 50,646,522 50,094,822

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 Months Three Months Six Months Six Months Twelve Ended Ended Ended Ended Months(in thousands) June 30, June 30, June 30, June 30, Ended 2020 2019 2020 2019 June 30, 2020

GAAP net lossincluding $ (16,751) $ (22,361) $ (20,565) $ (34,946) $ (47,129) non-controllinginterests

Expense(benefit) for 630 (6,290) (3,201) (6,877) (13,467) income taxes

Interest 6,513 8,670 13,479 17,415 29,848 expense^(1)

Depreciationand 11,568 12,275 23,145 24,336 82,265 amortization

Non-GAAP EBITDA $ 1,960 $ (7,706) $ 12,858 $ (72) $ 51,517

Share-based 974 595 1,762 1,152 3,323 compensation

Severancerelated costs^ 74 207 74 696 464 (2)

Othernon-recurring 639 1,815 2,383 5,008 6,121 costs^(3)

(Gain) loss onforeign (449) 2,519 (1,076) 2,938 114 currencyexchange^(4)

Mark-to-marketadjustments, - 167 - 357 (687) net^(5)

Impairment ofintangible - 992 - 992 10,432 assets^ (6)

Grant income (2,974) - (2,974) - (2,974)

Litigation - - (1,600) - (1,600) recovery

Non-GAAP $ 224 $ (1,411) $ 11,427 $ 11,071 $ 66,710 Adjusted EBITDA

Ratio of net debt to Adjusted June 30, Pro Forma Pro FormaEBITDA 2020 Adjustment ^(7) June 30, 2020

Gross debt $ 405,374 $ - $ 405,374

Less: available cash (35,619) (127,068) (162,687)

Net debt $ 369,755 $ (127,068) $ 242,687



Net debt-to-Adjusted EBITDA ratio 5.5 x 3.6 x

(1) Interest on the term loan and 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 related to the Tecnidex acquisition.

(6) Impairment of intangible assets related to software and trademarks.

(7) Represents proceeds from convertible preferred stock investment from Paine Schwartz Partners, less expenses.

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

Three Three Six Months Six Months Months Months Ended Ended(in thousands) Ended Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019

GAAP net sales $ 19,982 $ 21,183 $ 53,005 $ 60,123

Impact from changes in foreign 1,719 - 3,801 - currency exchange rates

Non-GAAP constant currency net $ 21,701 $ 21,183 $ 56,806 $ 60,123 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