Market Overview

AgroFresh Solutions Reports Updated Results for Second Quarter and First Half of 2018

Share:

Revenues up 12% in the quarter, 16% for the first half of Fiscal 2018

Further progress in diversifying end markets, introducing innovative
new technologies, and leveraging our growing global brand

  • Net sales up 12% to $18 million for the quarter and up 16% to $57
    million for first half of 2018
  • For the first half, 37% of revenue generated from crops other than
    apple, up from 22% for the first half of 2017
  • Signed collaboration agreement with Del Monte for RipeLock in
    retail, launched FreshCloud suite of storage and transportation
    screening and diagnostic solutions, and acquired Verigo which has
    strong IoT technology supporting FreshCloud Transit for the monitoring
    of perishables during transportation
  • Net loss of $31 million in the first half of 2018 compared to a net
    loss of $9 million in the first half of 2017, with a majority of the
    change due to lower gain on currency of $6 million and $15 million in
    tax benefits recorded in the first half of 2017
  • First half EBITDA[1] of $8 million down
    from prior year primarily due to the difference in gain on currency
  • Quarter end cash of $42 million

AgroFresh Solutions, Inc. ("AgroFresh" or the "Company") (NASDAQ:AGFS),
a global leader in produce freshness solutions, today updated its
financial results for the second quarter and first half of fiscal 2018,
ended June 30, 2018, reflecting certain changes to the preliminary
financial results reported by the Company on August 9, 2018. The changes
are the result of adjustments to foreign currency made during the
completion of the Company's financial closing procedures for the quarter
ended June 30, 2018. This press release restates the information
contained in the Company's press release of August 9, 2018, with the
bullets, copy and tables updated to reflect the updated financial
results.

Jordi Ferre, Chief Executive Officer, commented, "It's been an exciting
six months for AgroFresh with significant progress achieved along many
of our strategic initiatives. The core business continues to perform
well despite significantly lower apple crops in key Southern Hemisphere
countries, with SmartFresh maintaining its pricing integrity while
penetrating new markets, such as citrus, pears, flowers and plums. The
benefits of our strategic acquisition program are also evident in our
results. This was another quarter of significant contribution from
Tecnidex, which continues to deliver value not only through its
operations, but in synergistically enhancing the AgroFresh SmartFresh
Quality System. Consequently, we recorded strong growth in both the
quarter and the half. Margins reflect the ongoing evolution of our
operations, primarily a shift in product mix, including Tecnidex, as
well as the impact from adopting ASC 606. And, excluding Tecnidex,
overhead during the first six months of this year was down compared to
the first half of last year.

 
 
(1) EBITDA is a non-GAAP financial measure. Please see the information
under "Non-GAAP Financial Measures" below for a description of
EBITDA and the tables at the end of this press release for a
reconciliation of this Non-GAAP financial measure to GAAP results.
 
 

"From a long-term perspective, we've had an extremely productive first
half advancing growth initiatives in new product development, innovation
and partnerships. We signed an exciting agreement with Del Monte, a
leader in the banana market, for our revolutionary RipeLock product,
signaling further progress and inroads into the large and attractive
retail segment. We also recently announced our FreshCloud initiative,
including our first acquisition in the space, Verigo, which has an
established Internet of Things (IoT) technology for monitoring freshness
throughout the supply chain. This new technology is complementary to,
and integrates with, the core of our FreshCloud strategy, our
established AdvanStore capability and our genomic testing tools, which
provide predictive screening of our customers' produce. FreshCloud
provides us access to large new markets where technology is quickly
becoming an enabler of food preservation and waste reduction.

"Heading into the second half of the year, we are well prepared, with a
strong product lineup backed by a strong balance sheet. Based on our
performance in the first half, we feel positive going into the Northern
Hemisphere season."

Financial Highlights for the Second Quarter and
First Half of 2018

Net sales for the second quarter of 2018 were up 12% versus the second
quarter of 2017, driven by Tecnidex. Organic revenue was down versus the
year ago quarter driven by a significant year over year decline in the
Southern Hemisphere apple crop and the impact of the implementation of
ASC 606, which reduced revenue by $0.2 million. Revenues over the first
half of fiscal 2018 were up 16%, reflecting essentially the same factors
that impacted the quarter.

Consistent with the Company's expectations, margins for the quarter were
71% compared to 76% in the second quarter of 2017. SmartFresh margins
were little changed from a year ago. The year over year change in
margins was anticipated, and primarily reflects the evolving nature of
the Company's operations, which are now comprised of a larger proportion
of revenues generated by Tecnidex and Harvista, both of which have a
lower margin profile. The implementation of ASC 606 also required the
Company to defer revenue that would have otherwise been recognized in
the quarter, which accounted for 1 point of margin compression. Margins
for the first half of fiscal 2018 were 71%, down from 80% in the first
half of fiscal 2017, essentially reflecting the same factors that
affected the second quarter, with ASC 606 reducing margins 2 points.

Research and development costs were unchanged in the quarter at $3.7
million. Compared to a year ago, selling, general and administrative
expenses were down on a relative basis measured as a percentage of total
revenues, due to the effective integration of Tecnidex. Selling, general
and administrative expenses were $15.6 million compared to $13.4 million
in the year ago quarter, primarily due to Tecnidex costs as well as
approximately $1 million of non-recurring legal and other. Selling,
general and administrative expenses for the first half of fiscal 2018
were up approximately 7% from the prior year period, although on a
like-for-like basis, excluding Tecnidex, total selling, general and
administrative cost for the first half of 2018, including non-recurring
expenses, were down approximately $1 million.

Interest expense of $8.8 million was up slightly compared to the second
quarter of 2017 due to the effects of higher interest rates.

Net loss of $31 million in the first half of 2018 compares to a net loss
of $9 million in the first half of 2017. In the second quarter of 2017,
the Company recorded an $8 million gain on currency and a $15
million tax benefit within the provision for income taxes. In the second
quarter of 2018 there was a gain on currency of approximately $3 million.

Balance Sheet and Cash Flow

The balance sheet at June 30, 2018, was strong, including significant
liquidity. Cash on hand was $42 million. During the first half of 2018,
cash has been used to satisfy a $10 million liability to Dow, to pay $16
million in interest payments, $3 million more than last year due to
timing, to increase inventory as we prepare for the season and invest in
RipeLock, to facilitate a reduction in our accrued liabilities, and to
pay for the Verigo acquisition.

Katherine Harper, CFO, said, "Financial performance over the first half
of the year has been consistent with our expectations, with strong top
line growth and the moderation in margins anticipated with the evolving
nature of our operations. The second quarter is also our seasonally
slowest, and this tends to magnify any anomalies, such as the ASC 606
impact on margins. We remain focused on efficiency and productivity
improvements to help drive down costs, and this quarter revenues grew
faster than overhead expenses leading to better operating leverage.
Compared to a year ago, over the first six months of this year, expenses
for the core business, which excludes Tecnidex, are actually down as our
productivity and efficiency initiatives gain traction. Cash remains
strong, although down from recent highs primarily due to the paydown of
our term loan, scheduled payments to Dow and changes in working capital.
We expect to see an appreciable improvement in cash in the second half
of 2018 due to the seasonality of our business. More importantly, our
growth initiatives are generating results, with the acquisition of
Verigo and the introduction of FreshCloud, the integration with Tecnidex
and the agreement with Del Monte all expected to contribute over the
second half of this year. Consequently, we feel well positioned to
achieve our objectives and accelerate growth both organically and
inorganically to continue to strengthen the AgroFresh franchise."

Conference Call

The Company will conduct a conference call to discuss its second quarter
2018 results at 8:30 a.m. Eastern Time on August 9, 2018. To access the
call, please dial 877-883-0383 from the U.S. or 412-902-6506 from
outside the U.S. The conference call I.D. number is 8530687. The call
will also be available as a live webcast with an accompanying slide
presentation, which will be accessible via the "Events & Presentations"
page of the Investor Relations section of the Company's website at www.agrofresh.com.
All participants should call or access the website approximately 10
minutes before the conference call begins.

A telephone replay of the conference call will be available by
dialing 877-344-7529 (US) and 412-317-0088 (International)
until Thursday, August 23, 2018. The replay I.D. number is 10121906.

Non-GAAP Financial Measures

This press release contains the non-GAAP financial measure EBITDA. The
Company believes this non-GAAP financial measure provides meaningful
supplemental information as it is used by the Company's management to
evaluate the Company's performance. Management believes that this
measure enhances a reader's understanding of the financial performance
of the Company, is more indicative of operating performance of the
Company, and facilitates a better comparison between fiscal periods, as
the non-GAAP measure excludes items that are not considered core to the
Company's operations.

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

About AgroFresh

AgroFresh Solutions, Inc. (AGFS)
is a global leader in delivering innovative food preservation and waste
reduction solutions for fresh produce. The Company is empowering the
food industry with Smarter Freshness, a range of integrated solutions
designed to help growers, packers and retailers improve produce
freshness and quality, and reduce waste. AgroFresh's solutions range
from pre-harvest with Harvista™ and LandSpring™ to its marquee
SmartFresh™ Quality System, which includes SmartFresh, AdvanStore™ and
ActiMist™, working together to maintain the quality of stored produce.
AgroFresh also has a controlling interest in Tecnidex, a leading
provider of post-harvest fungicides, waxes, coatings and biocides for
the citrus market, including Textar™ and Teycer™. Additionally, the
Company's initial retail solution, RipeLock™, optimizes banana ripening
for the benefit of retailers and consumers. AgroFresh has key products
registered in over 45 countries, with approximately 3,700 direct
customers and services over 25,000 storage rooms globally. For more
information, please visit www.agrofresh.com.

™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; costs related to operating AgroFresh as a
stand-alone public company; changes in applicable laws or regulations,
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,
2018

     

December 31,
2017

 
ASSETS
Current Assets:
Cash and cash equivalents $ 41,776 $ 64,533

Accounts receivable, net of allowance for doubtful accounts
of
$1,575 and $1,550, respectively

39,916 71,509
Inventories 27,278 24,109
Other current assets       25,017         18,684  
Total current assets 133,987 178,835
Property and equipment, net 13,645 12,200
Goodwill 5,680 9,402
Intangible assets, net 736,940 757,882
Deferred income tax assets 7,605 8,198
Other assets       17,289         16,746  
TOTAL ASSETS       $ 915,146         $ 983,263  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,769 $ 15,014
Current portion of long-term debt 6,995 7,926
Income taxes payable 4,715 5,931
Accrued expenses and other current liabilities       50,046         65,809  
Total current liabilities 69,525 94,680
Long-term debt 401,469 402,868
Other noncurrent liabilities 37,644 38,505
Deferred income tax liabilities       30,031         31,130  
Total liabilities 538,669 567,183
 
Commitments and contingencies (see Note 17)
Stockholders' equity:

Common stock, par value $0.0001; 400,000,000 shares authorized,
51,148,343 and
51,002,234 shares issued and 50,486,962 and
50,340,853 shares outstanding
at June 30, 2018 and December
31, 2017, respectively

5 5

Preferred stock; par value $0.0001, 1 share authorized and
outstanding
at June 30, 2018 and December 31, 2017

Treasury stock; par value $0.0001, 661,381 shares at June 30, 2018
and
December 31, 2017

(3,885 ) (3,885 )
Additional paid-in capital 534,755 533,015
Accumulated deficit (140,080 ) (108,729 )
Accumulated other comprehensive loss       (22,834 )       (12,769 )
Total AgroFresh stockholders' equity 367,961 407,637
Non-controlling interest       8,516         8,443  
Total stockholders' equity       376,477         416,080  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 915,146         $ 983,263  
                       

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

 
       

Three Months Ended
June 30, 2018

     

Three Months Ended
June 30, 2017

     

Six Months Ended
June 30, 2018

     

Six Months Ended
June 30, 2017

Net sales $ 18,420 $ 16,389 $ 56,771 $ 49,119
Cost of sales (excluding amortization, shown separately below)       5,402         3,906         16,248         9,745  
Gross profit 13,018 12,483 40,523 39,374
Research and development expenses 3,733 3,735 6,802 7,032
Selling, general, and administrative expenses 15,609 13,435 31,920 29,866
Amortization of intangibles 11,402 10,445 22,341 20,890
Change in fair value of contingent consideration       98         (1,211 )       236         (996 )
Operating loss (17,824 ) (13,921 ) (20,776 ) (17,418 )
Other income 538 215 608 255
Gain on foreign currency exchange 3,272 7,968 5,203 11,071
Interest expense, net       (8,763 )       (8,564 )       (17,118 )       (18,857 )
Loss before income taxes (22,777 ) (14,302 ) (32,083 ) (24,949 )
Benefit for income taxes       (4,375 )       (16,909 )       (805 )       (15,527 )
Net (loss) income including non-controlling interests $ (18,402 ) $ 2,607 $ (31,278 ) $ (9,422 )
Less: Net (loss) income attributable to non-controlling interests       (18 )               73          
Net (loss) income attributable to AgroFresh Solutions, Inc       $ (18,384 )       $ 2,607         $ (31,351 )       $ (9,422 )
 
Net (loss) income per share:
Basic $ (0.37 ) $ 0.05 $ (0.63 ) $ (0.19 )
Diluted $ (0.37 ) $ 0.05 $ (0.63 ) $ (0.19 )
Weighted average shares outstanding:
Basic 49,864,822 49,670,621 49,814,744 49,941,993
Diluted 49,864,822 50,035,343 49,814,744 49,941,993
           

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 
(in thousands)      

Six Months Ended
June 30, 2018

     

Six Months Ended
June 30, 2017

Cash flows from operating activities:
Net loss $ (31,278 ) $ (9,422 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 22,953 22,046
Provision for bad debts 182 789
Stock-based compensation 1,900 806
Pension expense 64 153
Amortization of deferred financing costs 1,214 1,166
Accretion of contingent consideration 2,043 5,515
Increase (decrease) in fair value of contingent consideration 236 (996 )
Deferred income taxes (506 ) (19,726 )
Loss on sales of property 80
Provision for inventory obsolescence 89
Other 114 43
Changes in operating assets and liabilities:
Accounts receivable 27,340 37,232
Inventories (5,083 ) (2,758 )
Prepaid expenses and other current assets (8,152 ) 198
Accounts payable (7,300 ) (19,864 )
Accrued expenses and other liabilities (8,434 ) (1,987 )
Income taxes payable (1,216 ) 2,581
Other assets and liabilities       2,098         205  
Net cash (used in) provided by operating activities       (3,825 )       16,150  
Cash flows from investing activities:
Cash paid for property and equipment (2,327 ) (2,835 )
Proceeds from sale of property 9
Asset Acquisition (1,587 )
Other investments               (1,050 )
Net cash used in investing activities       (3,914 )       (3,876 )
Cash flows from financing activities:
Payment of Dow liabilities settlement (10,000 ) (10,000 )
Repayment of long term debt       (3,330 )       (2,125 )
Net cash used in financing activities       (13,330 )       (12,125 )
Effect of exchange rate changes on cash and cash equivalents       (1,688 )       1,131  
Net (decrease) increase in cash and cash equivalents (22,757 ) 1,280
Cash and cash equivalents, beginning of period       $ 64,533         77,312  
Cash and cash equivalents, end of period       $ 41,776         $ 78,592  
 
Supplemental disclosures of cash flow information:
Cash paid for:
Cash paid for interest $ 15,777 $ 12,309
Cash paid for income taxes $ 4,245 $ 1,291
Supplemental schedule of non-cash investing and financing
activities:
Accrued purchases of property and equipment $ $ 254
Settlement of Dow liabilities not resulting from cash payment, net
of deferred income taxes
$ $ 55,089
 

Non-GAAP Measure

The following table sets forth the non-GAAP financial measure of EBITDA.
The Company believes this non-GAAP financial measure provides meaningful
supplemental information as it is used by the Company's management to
evaluate the Company's performance, is more indicative of future
operating performance of the Company, and facilitates a better
comparison among fiscal periods, as the non-GAAP measure excludes items
that are not considered core to the Company's operations. 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 reconciliation between the non-GAAP financial measure
of EBITDA to its most directly comparable GAAP financial measure, net
income (loss):

                     
(in thousands)       Three Months Ended
June 30, 2018
      Three Months Ended
June 30, 2017
    Six Months Ended
June 30, 2018
      Six Months Ended
June 30, 2017
GAAP net income (loss) $ (18,402 ) $ 2,607 $ (31,278 ) $ (9,422 )
Provision (benefit) for income taxes (4,375 ) (16,909 ) (805 ) (15,527 )
Interest expense(1) 8,763 8,564 17,118 18,857
Depreciation and amortization       11,680         11,068       22,953         22,046  
Non-GAAP EBITDA       $ (2,334 )       $ 5,330       $ 7,988         $ 15,954  
 
(1)   Interest on the term loan and accretion for debt discounts, debt
issuance costs and contingent consideration.
 

View Comments and Join the Discussion!