News

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

  • Closed comprehensive refinancing on July 27, 2020, significantly reducing balance sheet leverage and enhancing flexibility to pursue diversification and growth initiatives
  • Second quarter net sales decreased 5.7% (increased 2.4% on a constant currency basis) versus the prior year period due to isolated impacts of the pandemic that included weakening of local currencies.
  • Gross profit margin increased 100 basis points to 71.7% for the six months ended June 30, 2020 versus the prior year period primarily due to supply chain efficiencies put in place at the end of 2019.
  • Selling, general and administrative expense decreased 17.5% to $26.4 million for the six months ended June 30, 2020, and decreased 10.5% when excluding nonrecurring items related to litigation, refinancing, M&A and severance, versus the prior year period.
  • Net loss of $16.8 million for the second quarter of 2020, as compared to net loss of $22.4 million for the second quarter of 2019. Net loss of $20.6 million for the first half of 2020, as compared to net loss of $34.9 million for the first half of 2019.
  • Adjusted EBITDA(1) of $0.2 million for the second quarter of 2020, as compared to ($1.4) million in the second quarter of 2019. Adjusted EBITDA(1) of $11.4 million for the first half of 2020, as compared to $11.1 million for the first half of 2019.

PHILADELPHIA–(BUSINESS WIRE)–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.

™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, 2020

December 31, 2019

 

 

 

ASSETS

 

 

Current Assets:

 

 

Cash and cash equivalents

$

35,619

 

$

29,288

 

Accounts receivable, net of allowance for doubtful accounts of $2,005 and $2,232, respectively

38,418

 

68,634

 

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 shares authorized, 52,875,089

and 51,839,527 shares issued and 52,213,708 and 51,178,146 outstanding at June 30, 2020 and December 31, 2019, respectively

5

 

5

 

Preferred stock, par value $0.0001; 1 share authorized and outstanding at

June 30, 2020 and December 31, 2019, respectively

 

 

Treasury stock, par value $0.0001; 661,381 shares at June 30, 2020 and

December 31, 2019, respectively

(3,885)

 

(3,885)

 

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 Ended
June 30, 2020

Three Months Ended
June 30, 2019

Six Months Ended
June 30, 2020

Six Months Ended
June 30, 2019

Net sales

$

19,982

 

$

21,183

 

$

53,005

 

$

60,123

 

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

6,453

 

6,289

 

14,981

 

17,624

 

Gross profit

13,529

 

14,894

 

38,024

 

42,499

 

Research and development expenses

2,895

 

3,257

 

5,537

 

7,154

 

Selling, general, and administrative expenses

12,722

 

16,148

 

26,431

 

32,046

 

Amortization of intangibles

10,936

 

11,766

 

21,893

 

23,382

 

Impairment of long lived assets

 

992

 

 

992

 

Change in fair value of contingent consideration

 

167

 

 

357

 

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 currency exchange

449

 

(2,519)

 

1,076

 

(2,938)

 

Interest expense, net

(6,513)

 

(8,670)

 

(13,479)

 

(17,415)

 

Loss before income taxes

(16,121)

 

(28,651)

 

(23,766)

 

(41,823)

 

Income taxes expense (benefit)

630

 

(6,290)

 

(3,201)

 

(6,877)

 

Net loss including non-controlling interests

(16,751)

 

(22,361)

 

(20,565)

 

(34,946)

 

Less: Net loss attributable to non-controlling interests

(197)

 

(92)

 

(363)

 

(58)

 

Net loss attributable to AgroFresh Solutions, Inc

$

(16,554)

 

$

(22,269)

 

$

(20,202)

 

$

(34,888)

 

 

 

 

 

 

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:

(in thousands)

Three Months

Ended

June 30, 2020

Three Months

Ended

June 30, 2019

Six Months

Ended

June 30, 2020

Six Months

Ended

June 30, 2019

Twelve Months

Ended

June 30, 2020

GAAP net loss including non-controlling interests

$

(16,751)

 

$

(22,361)

 

$

(20,565)

 

$

(34,946)

 

$

(47,129)

 

Expense (benefit) for income taxes

630

 

(6,290)

 

(3,201)

 

(6,877)

 

(13,467)

 

Interest expense(1)

6,513

 

8,670

 

13,479

 

17,415

 

29,848

 

Depreciation and amortization

11,568

 

12,275

 

23,145

 

24,336

 

82,265

 

Non-GAAP EBITDA

$

1,960

 

$

(7,706)

 

$

12,858

 

$

(72)

 

$

51,517

 

Share-based compensation

974

 

595

 

1,762

 

1,152

 

3,323

 

Severance related costs(2)

74

 

207

 

74

 

696

 

464

 

Other non-recurring costs(3)

639

 

1,815

 

2,383

 

5,008

 

6,121

 

(Gain) loss on foreign currency exchange(4)

(449)

 

2,519

 

(1,076)

 

2,938

 

114

 

Mark-to-market adjustments, net(5)

 

167

 

 

357

 

(687)

 

Impairment of intangible assets (6)

 

992

 

 

992

 

10,432

 

Grant income

(2,974)

 

 

(2,974)

 

 

(2,974)

 

Litigation recovery

 

 

(1,600)

 

 

(1,600)

 

Non-GAAP Adjusted EBITDA

$

224

 

$

(1,411)

 

$

11,427

 

$

11,071

 

$

66,710

 

Ratio of net debt to Adjusted EBITDA

June 30, 2020

Pro Forma

Adjustment (7)

Pro Forma
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 constant currency basis to GAAP net sales:

(in thousands)

Three Months Ended
June 30, 2020

Three Months Ended
June 30, 2019

Six Months Ended
June 30, 2020

Six Months Ended
June 30, 2019

GAAP net sales

$

19,982

 

$

21,183

 

$

53,005

 

$

60,123

 

Impact from changes in foreign currency exchange rates

1,719

 

 

3,801

 

 

Non-GAAP constant currency net sales (1)

$

21,701

 

$

21,183

 

$

56,806

 

$

60,123

 

(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.

Contacts

For AgroFresh Solutions, Inc.

Jeff Sonnek – Investor Relations

ICR Inc.

Jeff.Sonnek@icrinc.com
646-277-1263

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