UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2019
or
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36316
AgroFresh Solutions, Inc.
(Exact Name of Registrant as Specified in Its Charter) |
| | | | |
| Delaware | 46-4007249 |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification Number) |
One Washington Square
510-530 Walnut Street, Suite 1350
Philadelphia, PA 19106
(Address of principal executive offices)
(267) 317-9139
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.0001 per share | | AGFS | | The Nasdaq Stock Market LLC |
| Warrants, each warrant exercisable for one share of Common Stock at an exercise price of $11.50 | | AGFSW | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | | | | | | | | | | | | | | |
Large accelerated filer ¨ | Accelerated filer | x | Non-accelerated filer ¨ | Accelerated filer x
| Non-accelerated filer
¨
| Smaller reporting company ¨x | Emerging growth company x |
| | (Do not check if a
smaller reporting company)
| | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares of common stock outstanding as of NovemberMay 3, 20172019 was 50,337,382.51,453,233.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
AgroFresh Solutions, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
| | | | | | | | |
| | March 31,
2019 | December 31,
2018 |
| | |
| ASSETS | | |
| Current Assets: | | |
| Cash and cash equivalents | $ | 39,995 | $ | 34,852 |
| Accounts receivable, net of allowance for doubtful accounts of $1,887 and $2,336, respectively | 63,923 | 67,942 |
| Inventories | 22,441 | 24,807 |
| Other current assets | 13,947 | 15,608 |
| Total current assets | 140,306 | 143,209 |
| Property and equipment, net | 14,095 | 13,289 |
| Goodwill | 6,649 | 6,670 |
| Intangible assets, net | 700,039 | 711,967 |
| Deferred income tax assets | 8,361 | 7,332 |
| Other assets | 23,968 | 16,820 |
| TOTAL ASSETS | $ | 893,418 | $ | 899,287 |
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | |
| Current Liabilities: | | |
| Accounts payable | $ | 7,377 | $ | 7,530 |
| Current portion of long-term debt | 6,836 | 6,419 |
| Income taxes payable | 5,418 | 4,815 |
| Accrued expenses and other current liabilities | 51,246 | 45,340 |
| Total current liabilities | 70,877 | 64,104 |
| Long-term debt | 399,656 | 400,309 |
| Other noncurrent liabilities | 38,130 | 32,066 |
| Deferred income tax liabilities | 28,757 | 30,232 |
| Total liabilities | 537,420 | 526,711 |
| | |
| Commitments and contingencies (see Note 17) | | |
| Stockholders’ equity: | | |
| Common stock, par value $0.0001; 400,000,000 shares authorized, 51,425,734 and 51,071,573 shares issued and 50,764,353 and 50,410,192 outstanding at March 31, 2019 and December 31, 2018, respectively | 5 | 5 |
| Preferred stock; par value $0.0001, 1 share authorized and outstanding | — | — |
| Treasury stock; par value $0.0001, 661,381 shares at March 31, 2019 and December 31, 2018, respectively | (3,885) | (3,885) |
| Additional paid-in capital | 536,407 | 535,819 |
| Accumulated deficit | (151,408) | (138,789) |
| Accumulated other comprehensive loss | (33,418) | (28,837) |
| Total AgroFresh stockholders’ equity | 347,701 | 364,313 |
| Non-controlling interest | 8,297 | 8,263 |
| Total stockholders' equity | 355,998 | 372,576 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 893,418 | $ | 899,287 |
|
| | | | | | |
| | September 30,
2017 | December 31, 2016 |
| ASSETS | |
| |
|
| Current Assets: | | |
| Cash and cash equivalents | $ | 75,418 |
| $ | 77,312 |
|
| Accounts receivable, net of allowance for doubtful accounts of $1,502 and $1,242, respectively | 78,787 |
| 63,675 |
|
| Inventories | 16,952 |
| 15,467 |
|
| Other current assets | 14,319 |
| 14,047 |
|
| Total current assets | 185,476 |
| 170,501 |
|
| Property and equipment, net | 9,299 |
| 8,048 |
|
| Intangible assets, net | 748,793 |
| 776,584 |
|
| Deferred income tax assets | 7,694 |
| 8,459 |
|
| Other assets | 2,043 |
| 2,252 |
|
| TOTAL ASSETS | $ | 953,305 |
| $ | 965,844 |
|
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| |
|
| Current Liabilities: | | |
| Accounts payable | $ | 14,438 |
| $ | 12,133 |
|
| Current portion of long-term debt | 5,313 |
| 15,250 |
|
| Income taxes payable | 6,017 |
| 3,121 |
|
| Accrued expenses and other current liabilities | 48,094 |
| 66,366 |
|
| Total current liabilities | 73,862 |
| 96,870 |
|
| Long-term debt | 402,333 |
| 392,996 |
|
| Other noncurrent liabilities | 70,397 |
| 140,833 |
|
| Deferred income tax liabilities | 22,790 |
| — |
|
| Total liabilities | 569,382 |
| 630,699 |
|
| | | |
| Commitments and contingencies (see Note 17) |
|
|
|
| Stockholders’ equity: | |
| |
|
| Common stock, par value $0.0001; 400,000,000 shares authorized, 51,001,395 and 50,698,587 shares issued and 50,340,014 and 50,037,206 shares outstanding at September 30, 2017 and December 31, 2016, respectively | 5 |
| 5 |
|
| Preferred stock; par value $0.0001, 1 share authorized and outstanding at September 30, 2017 and December 31, 2016 | — |
| — |
|
| Treasury stock; par value $0.0001, 661,381 shares at September 30, 2017 and December 31, 2016 | (3,885 | ) | (3,885 | ) |
| Additional paid-in capital | 532,337 |
| 475,598 |
|
| Accumulated deficit | (132,076 | ) | (132,200 | ) |
| Accumulated other comprehensive loss | (12,458 | ) | (4,373 | ) |
| Total stockholders' equity | 383,923 |
| 335,145 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 953,305 |
| $ | 965,844 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
AgroFresh Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
| |
| Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 | | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Net sales | $ | 60,772 |
| $ | 61,200 |
| | $ | 109,891 |
| $ | 107,996 |
| Net sales | $ | 38,940 | $ | 38,351 |
| Cost of sales (excluding amortization, shown separately below) | 11,620 |
| 8,905 |
| | 21,365 |
| 48,558 |
| Cost of sales (excluding amortization, shown separately below) | 11,335 | 10,846 |
| Gross profit | 49,152 |
| 52,295 |
| | 88,526 |
| 59,438 |
| Gross profit | 27,605 | 27,505 |
| Research and development expenses | 3,071 |
| 2,983 |
| | 10,103 |
| 11,220 |
| Research and development expenses | 3,897 | 3,069 |
| Selling, general, and administrative expenses | 14,462 |
| 15,173 |
| | 44,328 |
| 49,385 |
| Selling, general, and administrative expenses | 15,898 | 16,311 |
| Amortization of intangibles | 10,445 |
| 10,080 |
| | 31,335 |
| 29,878 |
| Amortization of intangibles | 11,616 | 10,939 |
| Change in fair value of contingent consideration | (1,424 | ) | (1,569 | ) | | (2,420 | ) | (4,969 | ) | Change in fair value of contingent consideration | 190 | 138 |
| Operating income (loss) | 22,598 |
| 25,628 |
| | 5,180 |
| (26,076 | ) | |
| Operating loss | | Operating loss | (3,996) | (2,952) |
| Other (expense) income | (295 | ) | (38 | ) | | (40 | ) | 16 |
| Other (expense) income | (12) | 70 |
| (Loss) gain on foreign currency exchange | (487 | ) | 924 |
| | 10,584 |
| 682 |
| (Loss) gain on foreign currency exchange | (419) | 1,931 |
| Interest expense, net | (8,638 | ) | (14,526 | ) | | (27,495 | ) | (43,850 | ) | Interest expense, net | (8,745) | (8,355) |
| Income (loss) before income taxes | 13,178 |
| 11,988 |
| | (11,771 | ) | (69,228 | ) | |
| Income tax expense (benefit) | 3,632 |
| 4,676 |
| | (11,895 | ) | (26,239 | ) | |
| Net income (loss) | $ | 9,546 |
| $ | 7,312 |
| | $ | 124 |
| $ | (42,989 | ) | |
| Loss before income taxes | | Loss before income taxes | (13,172) | (9,306) |
| (Benefit) provision for income taxes | | (Benefit) provision for income taxes | (587) | 3,570 |
| Net loss including non-controlling interests | | Net loss including non-controlling interests | $ | (12,585) | $ | (12,876) |
| Less: Net income attributable to non-controlling interests | | Less: Net income attributable to non-controlling interests | 34 | 91 |
| Net loss attributable to AgroFresh Solutions, Inc | | Net loss attributable to AgroFresh Solutions, Inc | $ | (12,619) | $ | (12,967) |
| | |
| |
| |
|
|
|
| |
| Net income (loss) per share: | | | | |
| Net loss per share: | | Net loss per share: | |
| Basic | $ | 0.19 |
| $ | 0.15 |
| | $ | — |
| $ | (0.87 | ) | Basic | $ | (0.25) | $ | (0.26) |
| Diluted | $ | 0.19 |
| $ | 0.15 |
| | $ | — |
| $ | (0.87 | ) | Diluted | $ | (0.25) | $ | (0.26) |
| Weighted average shares outstanding: | |
| |
| | |
|
|
| Weighted average shares outstanding: | |
| Basic | 49,676,923 |
| 49,567,735 |
| | 49,852,337 |
| 49,385,733 |
| Basic | 50,042,054 | 49,741,593 |
| Diluted | 50,169,434 |
| 49,627,800 |
| | 50,134,591 |
| 49,385,733 |
| Diluted | 50,042,054 | 49,741,593 |
See accompanying notes to unaudited condensed consolidated financial statements.
AgroFresh Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(Unaudited)
(In thousands)
|
| | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| Net income (loss) | $ | 9,546 |
| $ | 7,312 |
| | $ | 124 |
| $ | (42,989 | ) |
| Other comprehensive income (loss): | |
| | | |
| |
| Foreign currency translation adjustments | 2,200 |
| (114 | ) | | (8,085 | ) | 4,619 |
|
| Comprehensive income (loss) | $ | 11,746 |
| $ | 7,198 |
| | $ | (7,961 | ) | $ | (38,370 | ) |
| | | | | | | | |
| Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Net loss | $ | (12,585) | (12,876) |
| Other comprehensive (loss) income: | | |
| Unrealized gain on hedging activity, net of tax of $0 and $594, respectively | — | 2,106 |
| Recognition of gain on hedging activity reclassified to net loss, net of tax of $75 and $0, respectively | (278) | — |
| Foreign currency translation adjustments | (4,303) | 3,050 |
| | |
| Comprehensive loss | $ | (17,166) | $ | (7,720) |
See accompanying notes to unaudited condensed consolidated financial statements.
AgroFresh Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Treasury Stock | Additional Paid-in Capital | Accumulated
Deficit | Accumulated
Other
Comprehensive
Loss | Non-Controlling Interest | Total
Stockholders’
Equity |
| Shares | Amount | Shares | Amount | Amount | | | | | |
| Balance at December 31, 2017 | 1 | $ | — | 51,002,234 | $ | 5 | $ | (3,885) | $ | 533,015 | $ | (108,729) | $ | (12,769) | $ | 8,443 | $ | 416,080 |
| Stock-based compensation | — | — | — | — | — | 509 | — | — | $ | — | $ | 509 |
| Issuance of restricted stock | — | — | 53,513 | — | — | — | — | — | $ | — | $ | — |
| Comprehensive loss | — | — | — | — | — | — | (12,967) | 5,156 | $ | 91 | $ | (7,720) |
| Balance at March 31, 2018 | 1 | $ | — | 51,055,747 | $ | 5 | $ | (3,885) | $ | 533,524 | $ | (121,696) | $ | (7,613) | $ | 8,534 | $ | 408,869 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other
Comprehensive
Income (Loss) | Total
Stockholders’
Equity |
| | Shares | Amount | Shares | Amount | Amount |
| Balance at December 31, 2015 | 1 |
| $ | — |
| 49,940,548 |
| $ | 5 |
| $ | (2,397 | ) | $ | 472,494 |
| $ | (20,640 | ) | $ | (5,559 | ) | $ | 443,903 |
|
| Stock-based compensation | — |
| — |
| — |
| — |
| — |
| 2,901 |
| — |
| — |
| 2,901 |
|
| Issuance of restricted stock | — |
| — |
| 644,395 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Repurchase of stock for treasury | — |
| — |
| — |
| — |
| (1,488 | ) | — |
| — |
| — |
| (1,488 | ) |
| Comprehensive loss | — |
| — |
| — |
| — |
| — |
| — |
| (42,989 | ) | 4,619 |
| (38,370 | ) |
| Balance at September 30, 2016 | 1 |
| $ | — |
| 50,584,943 |
| $ | 5 |
| $ | (3,885 | ) | $ | 475,395 |
| $ | (63,629 | ) | $ | (940 | ) | $ | 406,946 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Treasury Stock | Additional Paid-in Capital | Accumulated
Deficit | Accumulated
Other
Comprehensive
Loss | Non-Controlling Interest | Total
Stockholders’
Equity |
| Shares | Amount | Shares | Amount | Amount | | | | | |
| Balance at December 31, 2018 | 1 | $ | — | 51,071,573 | $ | 5 | $ | (3,885) | $ | 535,819 | $ | (138,789) | $ | (28,837) | $ | 8,263 | $ | 372,576 |
| Stock-based compensation | — | — | — | — | — | 588 | — | — | — | 588 |
| | | | | | | | | | |
| Issuance of stock, net of forfeitures | — | — | 354,161 | — | — | — | — | — | — | — |
| Comprehensive loss | — | — | — | — | — | — | (12,619) | (4,581) | 34 | (17,166) |
| Balance at March 31, 2019 | 1 | $ | — | 51,425,734 | $ | 5 | $ | (3,885) | $ | 536,407 | $ | (151,408) | $ | (33,418) | $ | 8,297 | $ | 355,998 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other
Comprehensive
Income (Loss) | Total
Stockholders’
Equity |
| | Shares | Amount | Shares | Amount | Amount |
| Balance at December 31, 2016 | 1 |
| $ | — |
| 50,698,587 |
| $ | 5 |
| $ | (3,885 | ) | $ | 475,598 |
| $ | (132,200 | ) | $ | (4,373 | ) | $ | 335,145 |
|
| Stock-based compensation | — |
| — |
| — |
| — |
| — |
| 1,318 |
| — |
| — |
| 1,318 |
|
| Transfer of director compensation from liability to equity | — |
| — |
| — |
| — |
| — |
| 332 |
| — |
| — |
| 332 |
|
| Issuance of restricted stock | — |
| — |
| 302,808 |
| — |
| — |
| — |
| — |
| — |
| — |
|
| Settlement of Dow liabilities, net of income tax | — |
| — |
| — |
| — |
| — |
| 55,089 |
| — |
| — |
| 55,089 |
|
| Comprehensive loss | — |
| — |
| — |
| — |
| — |
| — |
| 124 |
| (8,085 | ) | (7,961 | ) |
| Balance at September 30, 2017 | 1 |
| $ | — |
| 51,001,395 |
| $ | 5 |
| $ | (3,885 | ) | $ | 532,337 |
| $ | (132,076 | ) | $ | (12,458 | ) | $ | 383,923 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
AgroFresh Solutions, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| | | (in thousands) | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 | (in thousands) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Cash flows from operating activities: |
|
|
|
| Cash flows from operating activities: | |
| Net income (loss) | $ | 124 |
| $ | (42,989 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
| | |
| Net loss | | Net loss | $ | (12,585) | $ | (12,876) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
| Depreciation and amortization | 33,102 |
| 31,777 |
| Depreciation and amortization | 12,061 | 11,273 |
| Provision for bad debts | 260 |
| — |
| Provision for bad debts | (392) | 52 |
| Stock-based compensation for equity classified awards | 1,318 |
| 2,901 |
| |
| Stock-based compensation | | Stock-based compensation | 588 | 609 |
| Pension expense | 227 |
| — |
| Pension expense | — | 347 |
| Amortization of inventory fair value adjustment | — |
| 30,377 |
| |
| | Amortization of deferred financing costs | 1,764 |
| 1,696 |
| Amortization of deferred financing costs | 630 | 601 |
| Interest income on interest rate swap | | Interest income on interest rate swap | (356) | — |
| Accretion of contingent consideration | 7,297 |
| 22,931 |
| Accretion of contingent consideration | 884 | — |
| Decrease in fair value of contingent consideration | (2,420 | ) | (4,969 | ) | |
| Increase in fair value of contingent consideration | | Increase in fair value of contingent consideration | 190 | 138 |
| Deferred income taxes | (16,445 | ) | (24,910 | ) | Deferred income taxes | (1,781) | 3,630 |
| Loss on sales of property | 81 |
| 21 |
| Loss on sales of property | 49 | — |
| Other | 93 |
| 850 |
| |
| | Changes in operating assets and liabilities: |
|
| | Changes in operating assets and liabilities: | |
| Accounts receivable | (8,699 | ) | (8,520 | ) | Accounts receivable | 2,159 | 5,818 |
| Inventories | (1,363 | ) | (2,191 | ) | Inventories | 823 | 3,497 |
| Prepaid expenses and other current assets | (321 | ) | (19,627 | ) | Prepaid expenses and other current assets | 986 | (430) |
| Accounts payable | (9,486 | ) | 341 |
| Accounts payable | 654 | (7,853) |
| Accrued expenses and other liabilities | 7,691 |
| 5,272 |
| Accrued expenses and other liabilities | 6,291 | (9,426) |
| Income taxes payable | 3,050 |
| 1,206 |
| Income taxes payable | 650 | 1,758 |
| Other assets and liabilities | (1,354 | ) | 711 |
| Other assets and liabilities | (1,873) | 6,279 |
| Net cash provided by (used in) operating activities | 14,919 |
| (5,123 | ) | |
| Net cash provided by operating activities | | Net cash provided by operating activities | 8,978 | 3,417 |
| Cash flows from investing activities: |
|
| | Cash flows from investing activities: | |
| Cash paid for property and equipment | (5,281 | ) | (5,449 | ) | Cash paid for property and equipment | (2,586) | (1,905) |
| Proceeds from sale of property | 99 |
| 8 |
| |
| | Other investments | (1,050 | ) | — |
| Other investments | (250) | — |
| Net cash used in investing activities | (6,232 | ) | (5,441 | ) | Net cash used in investing activities | (2,836) | (1,905) |
| Cash flows from financing activities: |
|
| | Cash flows from financing activities: | |
| | Payment of Dow liabilities settlement | (10,000 | ) | — |
| Payment of Dow liabilities settlement | — | (10,000) |
| Repayment of long term debt | (2,125 | ) | (3,188 | ) | |
| Repurchase of stock for treasury | — |
| (1,488 | ) | |
| Repayment of long-term debt | | Repayment of long-term debt | (722) | (1,407) |
| | Net cash used in financing activities | (12,125 | ) | (4,676 | ) | Net cash used in financing activities | (722) | (11,407) |
| Effect of exchange rate changes on cash and cash equivalents | 1,544 |
| 2,152 |
| Effect of exchange rate changes on cash and cash equivalents | (277) | 2,324 |
| Net decrease in cash and cash equivalents | (1,894 | ) | (13,088 | ) | |
| Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | 5,143 | (7,571) |
| Cash and cash equivalents, beginning of period | 77,312 |
| 57,765 |
| Cash and cash equivalents, beginning of period | $ | 34,852 | $ | 64,533 |
| Cash and cash equivalents, end of period | $ | 75,418 |
| $ | 44,677 |
| Cash and cash equivalents, end of period | $ | 39,995 | $ | 56,962 |
| | | |
| Supplemental disclosures of cash flow information: | | Supplemental disclosures of cash flow information: | |
| Cash paid for: | | Cash paid for: | |
| Cash paid for interest | $ | 12,309 |
| $ | 18,460 |
| Cash paid for interest | $ | 27 | $ | 7,242 |
| Cash paid for income taxes | $ | 1,811 |
| $ | 2,487 |
| Cash paid for income taxes | $ | 599 | $ | 156 |
| Supplemental schedule of non-cash investing and financing activities: | | Supplemental schedule of non-cash investing and financing activities: | |
| Accrued purchases of property and equipment | $ | 1,422 |
| $ | 35 |
| Accrued purchases of property and equipment | $ | 102 | $ | — |
| Settlement of Dow liabilities not resulting from cash payment, net of deferred income taxes | $ | 55,089 |
| $ | — |
| |
| Right of use assets obtained in exchange for new lease liabilities | | Right of use assets obtained in exchange for new lease liabilities | $ | 33 | $ | — |
|
See accompanying notes to unaudited condensed consolidated financial statements.
AgroFresh Solutions, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | Description of Business |
1.Description of Business
AgroFresh Solutions, Inc. (the “Company”) is a global leader in thedelivering innovative food quality preservation and waste reduction space, providing proprietary advanced technologies and innovative data-driven specialty solutions aimed at enabling growers and packers offor fresh produce to preserve and enhance its freshness, quality and value to maximize the percentage of produce supplied to the market relative to the amount of produce grown, as well as increase consumer appeal of product at retail.. The Company currently offers SmartFreshis empowering the food industry with Smarter FreshnessTM applications at customer sites through, a direct service modelrange of integrated solutions designed to help growers, packers and provides advisory services relying onretailers improve produce freshness and quality while reducing waste. The Company’s solutions range from near-harvest with HarvistaTM and LandSpringTM, to its extensive knowledge onmarqueeSmartFreshTM Quality System, which includes SmartFreshTM, FreshCloudTM and ActiMistTM, working together to maintain the usequality of its products over thousands of monitored applications.stored produce. The Company operates in over 40 countries and currently derives the majority of its revenue working with customers to protect the value of apples, pears, and other produce during storage. Additionally the Company has a numbercontrolling interest in Tecnidex Fruit Protection, S.A.U. (“Tecnidex”), a leading provider of different solutionspost-harvest fungicides, waxes, and application technologies that have either been launched (Harvista,sanitizers for the citrus market. Additionally, the Company’s initial retail solution, RipeLock LandSpring) or will be launchedTM, optimizes banana ripening for the benefit of retailers and consumers.The Company has key products registered in the future that will seek to extend its footprint to other cropsover 50 countries, supports approximately 3,900 direct customers and steps of the global produce supply chain.services over 25,000 storage rooms globally.
The end markets that the Company serves are seasonal and are generally aligned with the seasonal growing patterns of the Company’s customers. For those customers growing, harvesting or storing apples, the Company’s primary target market, the peak season in the southern hemisphere is the first and second quarters of each year, while the peak season in the northern hemisphere is the third and fourth quarters of each year. Within each half-year period (i.e., January through June for the southern hemisphere, and July through December for the northern hemisphere) the apple growing season has historically occurred during both quarters. A variety of factors, including weather, may affect the timing of the growing, harvesting and storing patterns of the Company’s customers and therefore shift the consumption of the Company’s services and products between the first and second quarters primarily in the southern hemisphere or between the third and fourth quarters primarily in the northern hemisphere.
The Company was originally incorporated as Boulevard Acquisition Corp. (“Boulevard”), a blank check company, in Delaware on October 24, 2013, and was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination. On July 31, 2015, the Company completed a business combination (the "Business Combination") with The Dow Chemical Company ("Dow")Business Combination (refer to Note 3) and changed its name to AgroFresh Solutions, Inc. Prior to consummation of the Business Combination, the Company’s efforts were limited to organizational activities, its initial public offering and related financings, and the search for suitable business acquisition transactions.
| |
2. | Basis of Presentation and Summary of Significant Accounting Policies |
2.Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements include all adjustments that are necessary for a fair presentation of the Company's condensed consolidated results of operations, financial condition and cash flows for the periods shown, including normal, recurring accruals and other items. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year.
For additional information, these condensed consolidated financial statements should be read in conjunction with the consolidated and combined financial
statements and notes included in the Company'sCompany’s Annual Report filed on Form 10-K for the year ended December 31, 2016.2018.
Adoption of Highly Inflationary Accounting in Argentina
GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation rate exceeds 100 percent. The Company has been closely monitoring the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation rate in that country exceeded 100 percent as of June 30, 2018. As a result, the Company has elected to adopt highly inflationary accounting as of July 1, 2018 for its subsidiary in Argentina. Under highly inflationary accounting, the functional currency of the Company's subsidiary in Argentina became the U.S. dollar, and its income statement and balance sheet will be measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on Argentine peso-denominated monetary assets and liabilities will be reflected in earnings. As of March 31, 2019, the Company’s subsidiary in Argentina had a net asset position of $21.3 million. Net sales attributable to Argentina were approximately 15% of the Company’s consolidated net sales for each of the three months ended March 31, 2019 and 2018.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographic region, product and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| | | | | | | | | | | | | | | | | |
| Revenues for the three months ended March 31, 2019 | | | | | |
| (in thousands) | | | | | |
| Region | North America (1) | EMEA (2) | Latin America (3) | Asia Pacific (4) | Total Revenue |
| Product | | | | | |
| 1-MCP based | $ | 2,602 | $ | 6,781 | $ | 19,469 | $ | 4,353 | $ | 33,205 |
| Fungicides, waxes, coatings, sanitizers | — | 4,887 | $ | 565 | — | 5,452 |
| Other* | 123 | 12 | $ | 139 | 9 | 283 |
| $ | 2,725 | $ | 11,680 | $ | 20,173 | $ | 4,362 | $ | 38,940 |
| | | | | |
| Pattern of Revenue Recognition | | | | | |
| Products transferred at a point in time | $ | 2,290 | $ | 11,074 | $ | 20,143 | $ | 4,329 | $ | 37,836 |
| Services transferred over time | 435 | 606 | $ | 30 | 33 | 1,104 |
| $ | 2,725 | $ | 11,680 | $ | 20,173 | $ | 4,362 | $ | 38,940 |
| | | | | | | | | | | | | | | | | |
| Revenues for the three months ended March 31, 2018 | | | | | |
| (in thousands) | | | | | |
| Region | North America (1) | EMEA (2) | Latin America (3) | Asia Pacific (4) | Total Revenue |
| Product | | | | | |
| 1-MCP based | $ | 1,962 | $ | 5,120 | $ | 20,949 | $ | 4,328 | $ | 32,359 |
| Fungicides, waxes, coatings, sanitizers | — | 5,589 | — | — | 5,589 |
| Other* | 98 | 198 | 6 | 101 | 403 |
| $ | 2,060 | $ | 10,907 | $ | 20,955 | $ | 4,429 | $ | 38,351 |
| | | | | |
| Pattern of Revenue Recognition | | | | | |
| Products transferred at a point in time | $ | 2,047 | $ | 10,905 | $ | 20,949 | $ | 4,328 | $ | 38,229 |
| Services transferred over time | 13 | 2 | 6 | 101 | $ | 122 |
| $ | 2,060 | $ | 10,907 | $ | 20,955 | $ | 4,429 | $ | 38,351 |
*Other includes FreshCloud, technical services and sales-type leases related to Tecnidex.
———————————————————————————————
(1) North America includes the United States and Canada.
(2) EMEA includes Europe, the Middle East, and Africa.
(3) Latin America includes Argentina, Brazil, Chile, Costa Rica, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Peru, and Uruguay.
(4) Asia Pacific includes Australia, China, India, Japan, New Zealand, South Korea, Taiwan, and Thailand.
Sales of SmartFresh™ accounted for approximately 75% and 76% of the Company's total worldwide net sales for the three months ended March 31, 2019 and 2018, respectively.
Contract Assets and Liabilities
ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or
service to the customer. The following table presents changes in the Company’s contract assets and liabilities during the three months ended March 31, 2019 and the twelve months ended December 31, 2018:
| | | | | | | | | | | | | | |
| (in thousands) | Balance at
January 1, 2019 | Additions | Deductions | Balance at,
March 31, 2019 |
| Contract assets: | | | | |
| Unbilled revenue | $ | 1,956 | $ | 991 | $ | (320) | $ | 2,627 |
| Contract liabilities: | | | | |
| Deferred revenue | $ | 1,280 | $ | 1,145 | $ | (1,104) | $ | 1,321 |
| | | | | | | | | | | | | | |
| (in thousands) | Balance at
January 1, 2018 | Additions | Deductions | Balance at,
December 31, 2018 |
| Contract assets: | | | | |
| Unbilled revenue | 739 | 7,117 | (5,900) | 1,956 |
| Contract liabilities: | | | | |
| Deferred revenue | 100 | 4,428 | (3,248) | 1,280 |
The Company recognizes contract assets in the form of unbilled revenue in instances where services are performed by the Company but not billed by period end. The Company recognizes contract liabilities in the form of deferred revenue in instances where a customer pays in advance for future services to be performed by the Company. The Company generally receives payments from its customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the three months ended March 31, 2019. Amounts reclassified from unbilled revenue to accounts receivable for the three months ended March 31, 2019 and for the year ended December 31, 2018 were $0.3 million and $5.9 million, respectively. Amounts reclassified from deferred revenue to revenue for the three months ended March 31, 2019 and the year ended December 31, 2018 were $1.1 million and $3.2 million, respectively.
Recently Issued Accounting GuidanceStandards and Pronouncements
In MayAugust 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12 Targeted Improvements to Accounting for Hedging Activities. This update makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This update will be effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted upon its issuance. The Company adopted the new ASU as of January 1, 2019 and it did not have a material impact on the Company's financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation, (Topic 718) Scope of Modification Accounting. Accounting. ASU2017-09 addresses the changes to the terms and conditions of share-based awards. The ASU 2017-09 is effective for periods beginning after December 15, 2017 and interim periods therein on a modified retrospective basis. The Company is currently evaluatingadopted the impact this guidance will have on its financial statements.
In May 2014, the FASB issuednew ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which has been updated through several revisions and clarifications since its original issuance. The standard will require revenue recognized to represent the transferas of promised goods or services to customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effective January 1, 2018, with early adoption permissible beginning January 1, 2017.
The Company is continuing to evaluate theand it did not have a material impact that ASU 2014-09 will have on its consolidated financial statements and related disclosures. As the Company continues the evaluation and implementation process, it expects that there will be an impact to the Company’s financial reporting disclosures as well as any related business operations processes and internal controls over financial reporting. As part of the assessment performed through the date of this filing, the Company has created an implementation working group, which includes internal and third-party resources. As part of its implementation plan, the Company has adopted implementation controls that will allow it to properly and timely adopt the new revenue accounting standard on its effective date. In particular, the Company adopted implementation controls related to the following:
Developed a detailed project plan with key milestone dates;
Performed education of the new accounting standard;
Outlined the revenue generating activities that fall within the scope of ASU 2014-09, and is continuing to assess what impact the new accounting standard will have on those activities; and
Monitoring and assessment of the impact of changes to ASU 2014-09 and its interpretations as they become available.
Specific considerations made to date on the impact of adopting ASU 2014-09 include:
Collectibility - The valuation of revenue and accounts receivable, including whether negotiated contractual prices constitute price concessions or acceptance of the customer’s credit risk and how this impacts the timing of the Company’s revenue recognition. Currently, the Company recognizes revenue for the entire sales price and separately records a provision for bad debt as a component of operating expenses.
Performance Obligations - The treatment of the Company’s customer contracts, including whether the various goods and services promised in these contracts are distinct performance obligations, and the timing of revenue recognition for these goods and services. Currently, revenue is recognized at the time the product is applied to the fruits or vegetables as this represents the point at which the Company’s performance obligation to the customer has been completed.
Variable Consideration - The estimation and constraining of variable consideration, including rebates and how the Company will allocate these items to the performance obligations to its customer contracts. Currently, revenue is recognized net of estimated payments that are expected to be paid under rebate programs.
Significant Financing Component - Assessing whether certain contracts with customers provide a service of financing in addition to the delivery of the goods or services. In addition, the Company is assessing whether it can apply the practical expedient alleviating the application of the significant financing component requirements if the period between when the transfers of promised goods or services to a customer and when the customer pays for that good or service is one year or less. Currently, the Company does not recognize imputed interest on its accounts receivables due to its customary trade terms that do not exceed one year.
Contract Costs - The Company is continuing to assess the impact of ASU 2014-09 on the costs to acquire and fulfill its customer contracts, including whether the Company can apply the practical expedient of expensing contract costs when incurred if the amortization period of the asset that the Company would have recognized is one year or less. Currently, the Company’s accounting policy is to expense contract costs as they are incurred.
Transition Method - The Company is expecting to use a modified retrospective method of adoption, which would require a cumulative adjustment to opening retained earnings at the date of adoption (January 1, 2018), as opposed to a full retrospective application which would require a restatement of each comparable period presented within the financial statements. The Company is continuing to assess whether a material cumulative adjustment is necessary.
The significant assessment and implementation matters to be addressed prior to adopting ASU 2014-09 are as follows:
Completing the Company’s review of customer contracts in scope of ASU 2014-09;
Calculating the transition method adjustment;
Determining the impact that the new accounting standard will have on the Company’s consolidated financial statements and related disclosures; and
Updating, as needed, the Company’s business processes, systems and controls required to comply with ASU 2014-09 upon its effective date of January 1, 2018.
The Company anticipates completing its evaluation of the impact of ASU 2014-09 during the next three months and will adopt ASU 2014-09 when it becomes effective on January 1, 2018.
In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU No. 2017-07 requires employers to separate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently in the process of assessing the impact this guidance will have on its financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations, (Topic 805): Clarifying the Definition of a Business, in an effort to clarify. The new accounting guidance clarifies the definition of a business with the objective of addingand provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under the new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or businesses.a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. The amendmentsnew guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. During the second quarter of 2018, the Company adopted this standard in connection with the acquisition of Verigo (refer to Note 3).
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, which simplifies the test for goodwill impairment. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted for interim or annual goodwill impairments tests after January 1, 2017. This standard will impact future financial statements when adopted if the Company has impairment to its goodwill.
In February 2016, the FASB issued ASU 2016-02, Leases. The main objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU areis effective for fiscal years beginning after December 15, 2017, and2018, including interim periods within those fiscal years. Effective for the quarter ended March 31, 2019, the Companyadoptedthe guidance for leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption.Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance.
The Company also elected to apply practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption, including using hindsight to determine the lease term of existing leases, the option to not reassesswhether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The adoption of thisthe updated guidance isresulted in the Company recognizing a right-of-use asset of $7.3 million as part of other assets and a lease liability of $7.3 million as part of other current liabilities and other long-term liabilities in the consolidated balance sheet as of March 31, 2019. This represents a non-cash investing and financing activity as of the adoption date. The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not expected to have a material impacteffect on the Company's financial statements.Company’s results of operations or liquidity.
In August 2016,
3. Business Combinations and Asset Acquisition
Business Combination with Dow
On July 31, 2015 (the "Closing Date"), the FASB issued ASU 2016-15, StatementCompany consummated a business combination (the “Business Combination”) pursuant to the Stock Purchase Agreement, dated April 30, 2015 (the “Purchase Agreement”), by and between the Company and The Dow Chemical Company ("Dow") providing for the acquisition by the Company of Cash Flows - Classificationthe AgroFresh business from Dow, resulting in AgroFresh Inc. becoming a wholly-owned, indirect subsidiary of Certain Cash Receiptsthe Company. Pursuant to the Purchase Agreement, the Company paid the following consideration to Rohm and Cash Payments. ASU 2016-15 addresses how certain cash receiptsHaas Company (“R&H”), a subsidiary of Dow: (i) 17.5 million shares of common stock and cash payments are presented(ii) $635 million in cash.
Pursuant to a Tax Receivables Agreement among the Company, Dow, R&H and classifiedAgroFresh Inc. entered into in connection with the statementconsummation of cash flows. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Thethe Business Combination, as amended on April 4, 2017 (as so amended, the “Tax Receivables Agreement”), the Company is currently evaluatingrequired to pay to Dow 50% of the impact this guidance will have on its financial statements.annual tax savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of the increase in tax basis of the AgroFresh assets resulting from a Section 338(h)(10) election that the Company and Dow made in connection with the Business Combination.
In February 2015, the FASB issued ASU 2016-2, “Leases.” This update requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for periods beginning after December 15, 2018 and interim periods therein on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on its financial statements.
On April 4, 2017, the Company entered into an agreement (the “Amendment Agreement”) with Dow, Rohm and Haas Company (“R&H”),&H, Boulevard Acquisition Sponsor, LLC (the “Sponsor”), AgroFresh Inc., a wholly-owned subsidiary of the Company, Avenue Capital Management II, L.P. (“Avenue”) and solely as to certain sections of the Amendment Agreement, Joel Citron, Darren Thompson and Robert J. Campbell (collectively, the “Founding Holders”), Marc Lasry and Stephen Trevor.other parties. Pursuant to the Amendment Agreement, and certain related agreements entered into on the same date (as described below), among other things, the Company and Dow agreed to modify certain obligations of the Company pursuant to (i) the Stock Purchase Agreement, dated April 30, 2015 (the “Purchase Agreement”), between the Company and Dow, (ii) the Tax Receivables Agreement, dated July 31, 2015 (the “Tax Receivables Agreement”), among the Company, Dow, R&H and AgroFresh Inc., and (iii) the Warrant Purchase Agreement, dated July 31, 2015 (the “Warrant Purchase Agreement”), among the Company, Dow, R&H and the Sponsor. Each of Mr. Campbell and Mr. Lasry is a member of the Company's board of directors, Mr. Trevor was a member of the Company’s board of directors at the time the Amendment Agreement was entered into, and each of Dow and the Sponsor is a significant stockholder of the Company.
Amendment Agreement
Pursuant to the Amendment Agreement, the Company agreed to pay Dow the aggregate amount of $20.0$20.0 million, of which $10.0 million was paid on April 4, 2017 and the remaining $10.0 million is payablewas paid on or before January 31, 2018, in full satisfaction of theCompany’s obligations with respect to (i) the working capital adjustment under the Purchase Agreement, (ii) certain transfer and value added tax reimbursement obligations under the Purchase Agreement, and (iii) the amount payable to Dow pursuant to the Tax Receivables Agreement on account of the 2015 tax year. As ofDuring the three months ended March 31, 2017,2018, these liabilities inclusivewere extinguished.
Acquisition of accrued interest, were approximately $17.0 million, $9.3 million, and $12.0 million, respectively. During the nine months ended September 30,Tecnidex
On November 7, 2017, the liabilities were reduced by approximately $18.2 million.
Also pursuant to the Amendment Agreement, each of Avenue and Dow agreed to make available to the Company a credit facility, providing for loans of up to $50.0 million each, for use to complete one or more potential acquisitions prior to December 31, 2019, in each case subject to approval by both Avenue and Dow.
First Amendment to Tax Receivables Agreement
The Company, Dow, R&H and AgroFresh Inc. entered into a First Amendment to the Tax Receivables Agreement (the “TRA Amendment”). The TRA Amendment reduces, from 85% to 50%, the percentage that the Company is required to pay to Dow pursuant to the Tax Receivables Agreement of the annual tax savings, if any, in U.S. Federal, state and local income tax or franchise tax that the Company actually realizes as a result of the increase in tax basis of the AgroFresh assets resulting from a Section 338(h)(10) election that the Company and Dow made in connection with the transactions contemplated by the Purchase Agreement. During the nine months ended September 30, 2017 the liability to Dow was reduced by approximately $75.3 million as a result of the TRA Amendment.
Stock Buyback Agreement
The Company and Dow entered into a letter agreement (the “Stock Buyback Agreement”), pursuant to which Dow agreed to use its reasonable best efforts to purchase up to 5,070,358 shares of the Company’s common stock in the open market (representing approximately 10% of the total number of shares of the Company’s common stock then outstanding), over a period of up to 18 months.
Termination of Warrant Purchase Agreement
The Company, Dow, R&H and the Sponsor entered into a letter agreement, pursuant to which the Warrant Purchase Agreement was terminated effective immediately.
As a result of the Amendment Agreement, the TRA Amendment and the termination of the Warrant Purchase Agreement, the Company reduced the related liabilities during the first nine months of 2017 as follows:
|
| | | |
| (amounts in millions) | Nine Months Ended
September 30, 2017 |
| Amendment Agreement | $ | 18.2 |
|
| Warrant Purchase Agreement | 1.6 |
|
| TRA Amendment | 75.3 |
|
| Deferred tax adjustment related to Dow settlement | (40.0 | ) |
| Total reduction in related liabilities | $ | 55.1 |
|
The Company recorded an increase to additional paid in capital, net of deferred income taxes of $40.0 million, as an offset to the reduction in related liabilities, as the Company entered into a definitive agreement to acquire a controlling interest in Tecnidex. The transaction was closed on December 1, 2017. Tecnidex is a leading provider of post-harvest fungicides, waxes, coatings, and sanitizers for the April 4, 2017 agreementscitrus market, with related parties and the transactionclients in 18 countries. For over 35 years, Tecnidex has been treatedhelping fruit and vegetable producers offer clean, safe and high-quality products to their regional clients. The acquisition was accounted for as a capital transaction.
| |
4. | Related Party Transactions |
Pursuant to the purchase in accordance with ASC 805, Business Combination.
At the Company consummated on April 30, 2015 with Dow, a related party,effective date of the acquisition, the Company agreed to certain obligationspay holders of Tecnidex an estimated $25.0 million in cash for 75% of the outstanding capital stock, of which $20.0 million was paid on December 1, 2017. In2018, the purchase price was finalized as $22.3 million after giving effect to working capital, net debt and other adjustments. The remaining $2.3 million was paid during 2018.
In accordance with Dowthe acquisition method of accounting, the Company has allocated the purchase price to the estimated fair values of the identifiable assets acquired and liabilities assumed, with any excess allocated to goodwill. The preliminary assessment of fair value of the contingent consideration payments on the acquisition date was approximately $0.7 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. During 2018 there was an adjustment made
to consideration payable to holders of Tecnidex which resulted in a measurement period adjustment of $2.8 million to the purchase price allocation.
Acquisition of Verigo
On April 9, 2018, the Company acquired the assets of Comm-n-Sense Corp., d/b/a Verigo ("Verigo"), pursuant to the terms of an Asset Purchase Agreement, for approximately $1.8 million. Verigo, a privately-held organization, provided hardware in the Tax Receivables Agreement,form of wireless data receptors along with cloud-based software to synchronize data pulled from the hardware to support and provide tools for monitoring environmental and quality factors, such as temperature and relative humidity. The transaction was accounted for as an asset acquisition because substantially all of the Warrant Purchase Agreement, dated July 31, 2015. On April 4, 2017fair value of the Company and Dow amendedgross assets acquired was concentrated in a singular asset, the Purchase Agreement andacquired software. Asset acquisitions are accounted for using a cost accumulation approach, whereby the Tax Receivables Agreement pursuanttotal consideration paid is allocated to the Amendment Agreementindividual assets acquired and TRA Amendment, and entered into the Stock Buyback Agreement, each as described under Note 3 above.liabilities assumed on a relative fair value basis.
4.Related Party Transactions
The Company is also a party to ongoing agreements with Dow, a related party, including, but not limited to, operating-related agreements for certain transition services, seconded employees and occupancy.services. In connection with a transition services agreement entered into in connection with the Business Combination,Transition Services Agreement, the Company paid Dow a $5.0 million set-up fee which is beingwas amortized from September 2015 through December 2017, which isover the period during which the services arewere expected to be provided.
The Company incurred expenses for such services for the ninethree months ended September 30, 2017March 31, 2019 and September 30, 2016March 31, 2018 as follows:
| | | | | | | | |
| (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 |
| Ongoing costs of transition services agreement | $ | 30 | $ | 84 |
| Other expenses | — | 295 |
| Total incurred expenses | $ | 30 | $ | 379 |
|
| | | | | | |
| (amounts in thousands) | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| Amortization of prepayment related to set-up of transition services | $ | 620 |
| $ | 1,319 |
|
| Ongoing costs of transition services agreement | 2,228 |
| 3,604 |
|
| Rent expense | 693 |
| 951 |
|
| Amortization of prepayment related to Dow importation services | — |
| 397 |
|
| Other expenses | 379 |
| 835 |
|
| Total incurred expenses | $ | 3,920 |
| $ | 7,106 |
|
As of September 30, 2017 each of March 31, 2019 and September 30,March 31, 2018, the Company had no outstanding amounts payable to Dow.
Refer to Note 3 regarding the contingent consideration owed to Dow as part of the Business Combination, as well as certain other agreements entered into in connection with the Business Combination.
In addition, during 2016, the Company had an outstanding payable to Dow of $0.7 million and $2.5 million, respectively. See Notes 9 and 11 for other related party disclosures.
The Company hasmade a minority investment in RipeLocker, LCCLLC ("RipeLocker"), a company led by George Lobisser, a director of AgroFresh.the Company. In February 2019, the Company made a further minority investment in RipeLocker. On November 29, 2016, the Company entered into a Mutual Services Agreement (the “Services Agreement”) with George Lobisser and RipeLocker, LLC.RipeLocker. Pursuant to the Services Agreement, (i) the Company agreed to provide RipeLocker with technical support, in the form of access to the Company’s research and development personnel for a specified number of hours for purposes of providing advice and input relating to RipeLocker’s products and services, and (ii) Mr. Lobisser is entitledagreed to provide consulting services to the Company as may be reasonably requested by the Company from time to time. The Services Agreement provided for Mr. Lobisser to receive a consulting fee of $5,000 per full day for time spent performing consulting services under thisthe Services Agreement (pro-rated for any partial day), plus reimbursement for out-of-pocket expenses.expenses, provided that for each hour of technical support provided by the Company to RipeLocker, Mr. Lobisser agreed to provide one-half hour of consulting services for no consideration. In February 2017, the Company and Mr. Lobisser agreed to substantially curtail any mutual consulting services to be provided under the Services Agreement, and that any further services would be provided at no charge. For the ninethree months ended September 30, 2017,March 31, 2019, there were no material amounts paid and as of September 30, 2017,March 31, 2019, there were no material amounts owed to RipeLocker or Mr. Lobisser for consulting services.
5.Inventories
Inventories at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | (in thousands) | September 30,
2017 | December 31, 2016 | (in thousands) | March 31,
2019 | | December 31,
2018 |
| Raw material | $ | 1,143 |
| $ | 1,649 |
| Raw material | $ | 1,870 | | $ | 1,286 |
| Work-in-process | 6,323 |
| 7,963 |
| Work-in-process | 4,633 | | 4,749 |
| Finished goods | 8,694 |
| 5,132 |
| Finished goods | 14,896 | | 17,535 |
| Supplies | 792 |
| 723 |
| Supplies | 1,042 | | 1,237 |
| Total inventories | $ | 16,952 |
| $ | 15,467 |
| Total inventories | $ | 22,441 | | $ | 24,807 |
6. Other Current Assets
The Company's other current assets at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | | | | | | | | | |
| (in thousands) | March 31,
2019 | | December 31,
2018 |
| VAT receivable | $ | 7,640 | | $ | 7,854 |
| Prepaid income tax asset | 4,920 | | 5,090 |
| Prepaid and other current assets | 1,387 | | 2,664 |
| Total other current assets | $ | 13,947 | | $ | 15,608 |
7.Property and Equipment
|
| | | | | | |
| (in thousands) | September 30,
2017 | December 31, 2016 |
| VAT receivable | $ | 9,783 |
| $ | 9,306 |
|
| Prepaid income tax asset | 2,066 |
| 1,910 |
|
| Other | 2,470 |
| 2,831 |
|
| Total other current assets | $ | 14,319 |
| $ | 14,047 |
|
Property and equipment at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | | | | | | | | | | | | | | | |
| (in thousands, except for useful life data) | Useful life
(years) | | March 31,
2019 | | December 31,
2018 |
| Leasehold improvements | 7-20 | | $ | 5,621 | | $ | 4,647 |
| Machinery & equipment | 1-12 | | 8,597 | | 8,193 |
| Furniture | 1-12 | | 2,068 | | 2,712 |
| Construction in progress | | | 2,186 | | 1,744 |
| | | 18,472 | | 17,296 |
| Less: accumulated depreciation | | | (4,377) | | (4,007) |
| Total property and equipment, net | | | $ | 14,095 | | $ | 13,289 |
|
| | | | | | | |
| (in thousands, except for useful life data) | Useful life (years) | September 30,
2017 | December 31,
2016 |
| Leasehold improvements | 7-20 | $ | 1,775 |
| $ | 1,463 |
|
| Machinery & equipment | 1-12 | 7,105 |
| 6,066 |
|
| Furniture | 1-12 | 967 |
| 843 |
|
| Construction in progress | | 1,463 |
| 781 |
|
| | | 11,310 |
| 9,153 |
|
| Less: accumulated depreciation | | (2,011 | ) | (1,105 | ) |
| Total property and equipment, net | | $ | 9,299 |
| $ | 8,048 |
|
Depreciation expense for the three and nine months ended September 30, 2017 March 31, 2019 and 2018 was $0.3$0.4 million and $0.9$0.4 million, respectively.
Depreciation expense for the three and nine months ended September 30, 2016 was $0.2 million and $0.6 million, respectively.
Depreciation expense is recorded in cost of sales, selling, general and administrative expense and research and development expense in the condensed consolidated statements of income (loss).operations.
8.Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the three months ended March 31, 2019 and the twelve months ended December 31, 2018 were as follows:
| | | | | | | | |
| (in thousands) | March 31,
2019 | December 31,
2018 |
| Balance as of Beginning balance | $ | 6,670 | $ | 9,402 |
Measurement period adjustment
| — | (2,807) |
Foreign currency translation
| (21) | 75 |
| Balance as of Ending balance | $ | 6,649 | $ | 6,670 |
See Note 3 for a description of the measurement period adjustment.
The Company’s intangible assets at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2019 | | | | December 31, 2018 | | | |
| (in thousands) | Gross Carrying
Amount | Accumulated
Amortization | Impairment | Net | Gross Carrying
Amount | Accumulated
Amortization | Impairment | Net |
| Other intangible assets: | | | | | | | | |
| Developed technology | $ | 759,248 | $ | (143,967) | $ | — | $ | 615,281 | $ | 759,290 | $ | (134,151) | $ | — | $ | 625,139 |
| In-process research and development | 39,000 | (5,597) | — | 33,403 | 39,000 | (5,055) | — | 33,945 |
| Trade name | 25,445 | — | — | 25,445 | 28,507 | — | (2,600) | 25,907 |
| Service provider network | 2,000 | — | — | 2,000 | 2,000 | — | — | 2,000 |
| Customer relationships | 19,657 | (1,619) | — | 18,038 | 19,872 | (2,198) | — | 17,674 |
| Software | 9,380 | (3,563) | — | 5,817 | 9,405 | (2,161) | — | 7,244 |
| | | | | | | | |
| Other | 100 | (45) | — | 55 | 100 | (42) | — | 58 |
| Total intangible assets | $ | 854,830 | $ | (154,791) | $ | — | $ | 700,039 | $ | 858,174 | $ | (143,607) | $ | (2,600) | $ | 711,967 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net | | Gross Carrying Amount | Accumulated Amortization | Impairment | Net |
| Other intangible assets: | | | | | | | | |
| Developed technology | $ | 757,000 |
| $ | (85,071 | ) | $ | 671,929 |
| | $ | 757,000 |
| $ | (55,623 | ) | $ | — |
| $ | 701,377 |
|
| In-process research and development | 39,000 |
| (2,347 | ) | 36,653 |
| | 39,000 |
| (722 | ) | — |
| 38,278 |
|
| Trade name | 26,000 |
| — |
| 26,000 |
| | 35,500 |
| — |
| (9,500 | ) | 26,000 |
|
| Service provider network | 2,000 |
| — |
| 2,000 |
| | 2,000 |
| — |
| — |
| 2,000 |
|
| Customer relationships | 8,000 |
| (722 | ) | 7,278 |
| | 8,000 |
| (472 | ) | — |
| 7,528 |
|
| Software | 1,200 |
| (320 | ) | 880 |
| | 660 |
| (104 | ) | — |
| 556 |
|
| Software not yet placed in service | 3,974 |
| — |
| 3,974 |
| | 753 |
| — |
| — |
| 753 |
|
| Other | 100 |
| (21 | ) | 79 |
| | 100 |
| (8 | ) | — |
| 92 |
|
| Total intangible assets | $ | 837,274 |
| $ | (88,481 | ) | $ | 748,793 |
| | $ | 843,013 |
| $ | (56,929 | ) | $ | (9,500 | ) | $ | 776,584 |
|
At September 30, 2017,March 31, 2019, the weighted-average amortization period remaining for the finite-lived intangible assets was 17.614.7 years. At September 30, 2017,March 31, 2019, the weighted-average amortization periods remaining for developed technology, customer relationships, in-process R&D, software and other was 17.6, 21.9, 17.0,16.0, 12.7, 15.3, 2.1, and 3.3 and 4.8 years, respectively.
Estimated annual amortization expense for finite-lived intangible assets excluding amounts not placed in service, subsequent to September 30, 2017March 31, 2019 is as follows:
| | | | | |
| (in thousands) | Amount |
| 2019 (remaining) | $ | 35,094 |
| 2020 | 46,842 |
| 2021 | 43,969 |
| 2022 | 43,325 |
| 2023 | 43,325 |
| Thereafter | 460,039 |
| Total | $ | 672,594 |
Amortization expense for intangible assets for the three months ended March 31, 2019 and 2018 was $11.6 million and $10.9 million, respectively.
9.Accrued and Other Current Liabilities
|
| | | |
| (in thousands) | Amount |
| 2017 (remaining) | $ | 10,518 |
|
| 2018 | 42,071 |
|
| 2019 | 42,052 |
|
| 2020 | 41,919 |
|
| 2021 | 41,814 |
|
| Thereafter | 538,445 |
|
| Total | $ | 716,819 |
|
| |
9. | Accrued and Other Current Liabilities |
The Company’s accrued and other current liabilities at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | (in thousands) | September 30,
2017 | December 31, 2016 | (in thousands) | March 31,
2019 | December 31,
2018 |
| Warrant consideration | $ | — |
| $ | 1,080 |
| |
| Tax amortization benefit contingency | 3,744 |
| 17,535 |
| Tax amortization benefit contingency | $ | 11,098 | $ | 11,098 |
| Working capital settlement | — |
| 17,000 |
| |
| Additional consideration due seller | — |
| 9,263 |
| Additional consideration due seller | 568 | 379 |
| Dow settlement liability | 10,000 |
| — |
| |
| Accrued compensation and benefits | 7,628 |
| 6,352 |
| Accrued compensation and benefits | 6,825 | 10,192 |
| Accrued rebates payable | 5,931 |
| 4,701 |
| Accrued rebates payable | 5,093 | 3,616 |
| Insurance premium financing payable | 953 |
| 578 |
| Insurance premium financing payable | 367 | 721 |
| Severance | 412 |
| 1,564 |
| Severance | 1,143 | 971 |
| | Deferred revenue | | Deferred revenue | 1,321 | 1,280 |
| Accrued taxes | 8,561 |
| 4,598 |
| Accrued taxes | 5,369 | 5,316 |
| Accrued interest | | Accrued interest | 7,808 | — |
| Lease liability | | Lease liability | 2,086 | — |
| Other | 10,865 |
| 3,695 |
| Other | 9,568 | 11,767 |
| Total accrued and other current liabilities | $ | 48,094 |
| $ | 66,366 |
| Total accrued and other current liabilities | $ | 51,246 | $ | 45,340 |
Refer to Note 3 regarding the contingent consideration owed to Dow as partOther current liabilities include primarily professional services, litigation and research and development accruals.
10.Debt
The Company’s debt, net of unamortized discounts and deferred financing fees, at March 31, 2019 and December 31, 2018 consisted of the Business Combination.following:
| | | | | | | | | | | |
| (in thousands) | March 31,
2019 | | December 31,
2018 |
| Total Term Loan outstanding | $ | 404,507 | | $ | 403,957 |
| Tecnidex loan outstanding | 1,985 | | 2,771 |
| Less: Amounts due within one year | 6,836 | | 6,419 |
| Total long-term debt due after one year | $ | 399,656 | | $ | 400,309 |
At March 31, 2019, the Company evaluated the amount recorded under the Term Loan (defined below) and determined that the fair value was approximately $401.0 million. The fair value of the debt is based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
The Term Loan is presented net of deferred issuance costs, which are amortized using the effective interest method over the term of the Term Loan. Gross deferred issuance costs at the inception of the Term Loan were $12.9 million and as of March 31, 2019 there were $5.6 million of unamortized deferred issuance costs.
Scheduled principal repayments of debt subsequent to March 31, 2019 are as follows:
| | | | | |
| (in thousands) | Amount |
| 2019 (remaining) | $ | 5,774 |
| 2020 | 4,711 |
| 2021 | 401,625 |
| |
| |
| Total | $ | 412,110 |
Credit Facility
On July 31, 2015, in connection with the consummation of the Business Combination, AgroFresh Inc. as the borrower and its parent, AF Solutions Holdings LLC (“AF Solutions Holdings”), a wholly-owned subsidiary of the Company, as the guarantor, entered into a Credit Agreement with Bank of Montreal, as administrative agent (the(as subsequently amended, the “Credit Facility”). The Credit Facility consists of a $425$425.0 million term loan (the “Term Loan”), with an amortization equal to 1.00% per year, and a $25 million revolving loan facility (the “Revolving Loan”). On January 31, 2019, the Revolving Loan was amended to reduce the total availability from $25.0 million to $12.5 million, to extend the maturity date from July 31, 2019 to December 31, 2020, and to amend certain financial covenants. The Revolving Loan includes a $10$10.0 million letter-of-credit sub-facility, issuances against
which reduce the available capacity for borrowing. As of September 30, 2017, the Company has issued $0.5 million of letters of credit, against which no funds have been drawn.borrowing. The Term Loan has a scheduled maturity date of July 31, 2021, and the Revolving Loan has a scheduled maturity date of July 31, 2019.2021. The interest rates on borrowings under the facilities are either the alternate base rate plus 3.75% or LIBOR plus 4.75% per annum, with a 1.00% LIBOR floor (with step-downs in respect of borrowings under the Revolving Loan dependent upon the achievement of certain financial ratios). At September 30, 2017, the effective interest rate was 6.68%. The obligations under the Credit Facility are secured by liens on substantially all of the assets of (a) AgroFresh Inc. and its direct wholly-owned domestic subsidiaries, and (b) AF Solutions Holdings, including the common stock of AgroFresh Inc.
Certain restrictive covenants are contained in the Credit Facility, which the Company was in compliance with as of September 30, 2017. The Credit Facility imposes an overall cap on the total amount of dividends the Company can pay, together with the total amount of shares and warrants the Company can repurchase, of $12 million per fiscal year, and imposes certain other conditions on the Company’s ability to pay dividends.
The Company’s debt, net of unamortized discounts and deferred financing fees, at September 30, 2017 and December 31, 2016 consisted of the following:
|
| | | | | | |
| (in thousands) | September 30,
2017 | December 31,
2016 |
| Total Term Loan outstanding | $ | 407,646 |
| $ | 408,246 |
|
| Less: Amounts due within one year | 5,313 |
| 15,250 |
|
| Total long-term debt due after one year | $ | 402,333 |
| $ | 392,996 |
|
At September 30, 2017, the Company evaluated the amount recorded under the Term Loan and determined that the fair value was approximately $416.5 million. The fair value of the debt is based on quoted inactive market prices and is therefore classified as Level 2 within the fair value hierarchy.
The Term Loan is presented net of deferred issuance costs, which are amortized using the effective interest method over the term of the Term Loan. Gross deferred issuance costs at the inceptionproceeds of the Term Loan were $12.9 million and asused to fund a portion of September 30, 2017 there were $8.9 million of unamortized deferred issuance costs.
Scheduled principal repaymentsthe purchase price payable to R&H in connection with the Business Combination. Amounts available under the TermRevolving Loan subsequent to September 30, 2017 aremay also be used for working capital, general corporate purposes, and other uses, all as follows:
|
| | | |
| (in thousands) | Amount |
| 2017 (remaining) | $ | 2,125 |
|
| 2018 | 4,250 |
|
| 2019 | 4,250 |
|
| 2020 | 4,250 |
|
| 2021 | 401,625 |
|
| Total | $ | 416,500 |
|
Beginning withmore fully set forth in the year ended DecemberCredit Agreement. At March 31, 2016, the Company is required to prepay Term Loan Borrowings and Incremental Term Loan Borrowings in an aggregate amount equal to 50% of the Excess Cash Flow for the fiscal year; provided that such amount of the Excess Cash Flow in any fiscal year shall be reduced by (i) the aggregate amount of prepayments of Term Loans and Incremental Term Loans made, (ii) to the extent accompanied by permanent reductions of Revolving Commitments, the aggregate amount of prepayments of Revolving Loans (other than prepayments financed with the proceeds of Indebtedness), (iii) repaid borrowings of Revolving Loans made on the Effective Date to account for any additional original issue discount or upfront fees that are implemented pursuant to the Fee Letter and (iv) the aggregate amount of cash dividends paid by the Company or Holdings to Holdings or Boulevard for the payment of the Seller Earnout; provided further that, prepayments of Term Loan Borrowings and Incremental Term Loan Borrowings shall only be required if 50% of the Excess Cash Flow for such fiscal year exceeds $5 million. The amount due under this provision for the year ended December 31, 2016 was originally estimated to be $11.0 million, but it was subsequently determined that no amount was payable for such year. There are no amounts due under this provision as of September 30, 2017.
At September 30, 2017,2019, there was $416.5$410.1 million outstanding under the Term Loan and no balance outstanding under the Revolving Loan.
In July 2015,As of the Closing Date, the Company incurred approximately $12.9 million in debt issuance costs related to the Term Loan and $1.3 million in costs related to the Revolving Loan. The debt issuance costs associated with the Term Loan were capitalized against the principal balance of the debt, and the Revolving Loan costs were capitalized in Other Assets. All issuance costs will be accreted through interest expense for the duration of each respective debt facility. The interest expense related to the amortization of the debt issuance costs during the three and nine months ended September 30, 2017March 31, 2019 and 2018 was approximately $0.6 million and $1.8$0.6 million, respectively.
Certain restrictive covenants are contained in the Credit Facility, which includes the Revolving Loan, and the Company was in compliance with these covenants as of March 31, 2019. The Company had full availability to draw under the Revolving Loan as of March 31, 2019.
Beginning with the year ended December 31, 2016, the Company is required to prepay Term Loan Borrowings and Incremental Term Loan Borrowings in an aggregate amount equal to 50% of the "Excess Cash Flow" (as defined in the Credit Facility) for the fiscal year; provided that such amount of the Excess Cash Flow in any fiscal year shall be reduced by (i) the aggregate amount of prepayments of Term Loans and Incremental Term Loans made, (ii) to the extent accompanied by permanent reductions of Revolving Commitments, the aggregate amount of prepayments of Revolving Loans (other than prepayments financed with the proceeds of Indebtedness), and (iii) repaid borrowings of Revolving Loans made on the Effective Date to account for any additional original issue discount or upfront fees that are implemented pursuant to the Fee Letter provided further that, prepayments of Term Loan Borrowings and Incremental Term Loan Borrowings shall only be required if 50% of the Excess Cash Flow for such fiscal year exceeds $5.0 million. There are no amounts due under this provision as of March 31, 2019.
11. Leases
The Company enters into lease agreements for certain facilities and vehicles that are primarily used in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease.
Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.
Lease expense is included in general and administrative expenses in the condensed consolidated statements of operations. Additional information regarding the Company's operating leases is as follows:
| | | | | |
11.(in thousands) | Other Noncurrent LiabilitiesThree Months Ended
March 31, 2019 |
| Operating Lease Cost | |
| Operating leases | $ | 601 |
Short-term leases (1) | 31 |
| Total lease expense | $ | 632 |
| | | | | |
| Other information on operating leases | |
| Cash payments included in operating cash flows | $ | 585 |
| Weighted average discount rate | 9.21 | % |
| Weighted average remaining lease term in years | 5.83 |
———————————————————————————————
(1) Leases with an initial term of twelve months or less are not recorded on the balance sheet.
The following table presents the contractual maturities of the Company's lease liabilities as of March 31, 2019:
| | | | | |
| (in thousands) | Lease Liability |
| Remainder of 2019 | $ | 1,779 |
| 2020 | 1,911 |
| 2021 | 1,639 |
| 2022 | 1,480 |
| 2023 | 1,277 |
| 2024 and thereafter | 2,377 |
| Total undiscounted lease payments | $ | 10,463 |
| Less: present value adjustment | 3,163 |
| Operating lease liability | $ | 7,300 |
The following table presents the future minimum lease payments as of December 31, 2018 under noncancellable operating leases:
| | | | | |
| (in thousands) | Future lease Payments |
| 2019 | $ | 3,413 |
| 2020 | 2,058 |
| 2021 | 1,790 |
| 2022 | 1,640 |
| 2023 | 1,242 |
| Thereafter | 2,396 |
| Total | $ | 12,539 |
12.Other Noncurrent Liabilities
The Company’s other noncurrent liabilities at September 30, 2017March 31, 2019 and December 31, 20162018 consisted of the following:
| | | | | | | | |
| (in thousands) | March 31,
2019 | December 31,
2018 |
| Tax amortization benefit contingency | $ | 30,253 | $ | 29,369 |
| | |
| | |
| Lease liability | 5,214 | — |
| Other | 2,663 | 2,697 |
| Total other noncurrent liabilities | $ | 38,130 | $ | 32,066 |
Other noncurrent liabilities include long-term rebates and deferred rent.
13. Severance
|
| | | | | | |
| (in thousands) | September 30,
2017 | December 31, 2016 |
| Tax amortization benefit contingency | $ | 65,855 |
| $ | 132,724 |
|
| Deferred payment | — |
| 2,498 |
|
| Other | 4,542 |
| 5,611 |
|
| Total other noncurrent liabilities | $ | 70,397 |
| $ | 140,833 |
|
There was $0.2The Company expensed $0.5 million and $0.3 million for severance expense for the three and nine months ended September 30, 2017, respectively. For the threeMarch 31, 2019 and nine months ended September 30, 2016, there was $1.2 million and $2.6 million of severance expense,2018, respectively. This amount, which does not include stock compensation expense, was recorded in selling, general and administrative expense in the condensed consolidated statements of income (loss).loss. As of September 30, 2017,March 31, 2019, the Company had $0.6$1.1 million of severance liability of which $0.4 million will be paid out over the next year.
14.Stockholders’ Equity
The authorized common stock of the Company consists of 400,000,000 shares with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of September 30, 2017,March 31, 2019, there were 50,340,01450,764,353 shares of common stock outstanding. As of September 30, 2017,March 31, 2019, there were warrants to purchase 15,983,072 shares of the Company’s common stock outstanding at a strike price of $11.50. Of the 15,983,072 warrants, 9,823,072 were issued as part of the units sold in the Company's initial public offering in February 2014 (1,201,928 warrantswere subsequently repurchased during 2015) and 6,160,000 warrants were sold in a private placement at the time of such public offering.
In connection with and as a condition to the consummation of the Business Combination, the Company issued Rohm and HaasR&H one share of Series A Preferred Stock. Rohm and Haas,R&H, voting as a separate class, is entitled to appoint one director to the Company’s board of directors for so long as Rohm and HaasR&H beneficially holds 10% or more of the aggregate amount of the outstanding shares of common stock and non-voting common stock of the Company. The Series A Preferred Stock has no other rights.
| |
14. | Stock-based Compensation |
15.Stock-based Compensation
Stock compensation expense for both equity-classified and liability-classified awards for the three and nine months ended September 30, 2017 March 31, 2019 and 2018 was $0.5$0.6 million and $1.7 $0.6 million respectively. Stock compensation expense for both equity-classified and liability-classified awards for the three and nine months ended September 30, 2016 was $1.3 million and $3.2 million,, respectively. Stock compensation expense is recognized in cost of goods sold, selling, general and administrative expenses, and research and development expenses. At September 30, 2017,March 31, 2019, there was $5.0$6.0 million of unrecognized compensation cost relating to outstanding unvested equity instruments expected to be recognized over the weighted average period of 2.032.3 years.
On March 29, 2019, the Company granted the following share-based awards to members of management employed in the United States. These awards will be settled in shares of the Company's common stock and are equity-classified. The grant date fair value of these awards will be recognized on a straight-line basis over the vesting period. The performance-based restricted stock units each have a performance period that ends on December 31, 2021 and the other awards vest ratably on the first, second and third anniversaries of the grant date.
| | | | | |
15. | Earnings Per ShareNumber of shares |
| Performance-based restricted stock units | 467,500 |
| Time-based restricted stock | 363,650 |
| Options | 324,450 |
| Total | 1,155,600 |
On March 29, 2019, the Company also granted the following share-based awards to members of management employed in countries outside of the United States. These awards will be settled in cash and are liability-classified. Therefore, the fair value of these liability-classified awards will be re-measured on each balance sheet date. The performance-based phantom shares each have a performance period that ends on December 31, 2021 and the other awards vest ratably on the first, second and third anniversaries of the grant date.
| | | | | |
| Number of shares |
| Performance-based phantom shares | 46,200 |
| Service-based phantom shares | 75,250 |
| Stock appreciation rights | 5,450 |
| Total | 126,900 |
The performance-based restricted stock units and phantom shares were valued with a Monte Carlo simulation model using the assumptions in the table below. Based on these assumptions, the grant date fair value of the performance-based restricted stock units and phantom shares was estimated to be $2.97 per share.
| | | | | | | | |
| Volatility | 65.1 | % |
| Risk-free interest rate | 2.36 | % |
| Dividend yield | — | % |
| Grant date stock price | $3.34 |
| Performance period | 2.8 years |
The stock options and stock appreciation rights were valued with a Black-Scholes option pricing model using the assumptions in the table below. Since the Company has limited historical volatility information available, the expected volatility was based on actual volatility for comparable public companies projected over the expected term of the Options and the actual volatility for the Company since the Business Combination. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the Options. The expected life was estimated using the simplified method. Based on these assumptions, the grant-date fair value of the stock options and stock appreciation rights was estimated to be $1.72.
| | | | | | | | |
| Volatility | 52.33 | % |
| Risk-free interest rate | 2.27 | % |
| Dividend yield | — | % |
| Grant date stock price | $3.34 |
| Expected life | 6 years |
The fair value of the time-based restricted stock and the service-based phantom shares is equal to the closing price of the Company’s common stock on the grant date of the awards.
16.Earnings Per Share
Basic income (loss)loss per share is calculated by dividing net income (loss)loss by the weighted average number of common shares outstanding for the period. In computingDue to the loss for the three months ended March 31, 2019, dilutive income (loss) per share, basic income (loss)loss per share is adjustedthe same as basic loss per share as the adjustment for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock and warrants.warrants would be anti-dilutive.
The following is a reconciliation of the weighted-average common shares outstanding used for the computation of basic and diluted net income (loss)loss per common share:
| | | | | | | | |
| Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Basic weighted-average common shares outstanding | 50,042,054 | 49,741,593 |
| Effect of dilutive options, performance stock units and restricted stock | — | — |
| Diluted weighted-average shares outstanding | 50,042,054 | 49,741,593 |
|
| | | | | | | | | |
| | Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| Basic weighted-average common shares outstanding | 49,676,923 |
| 49,567,735 |
| | 49,852,337 |
| 49,385,733 |
|
| Effect of dilutive options, performance stock units and restricted stock | 492,511 |
| 60,065 |
| | 282,254 |
| — |
|
| Dilute weighted-average shares outstanding | 50,169,434 |
| 49,627,800 |
| | 50,134,591 |
| 49,385,733 |
|
Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the average closing price of the Company's common stock during the period, because their inclusion would result in an anti-dilutive effect on per share amounts.
The following represents amounts were not includedthat could potentially dilute basic earnings per share in the calculation of net income (loss) per diluted share because their effects were anti-dilutive:future:
| | | | | | | | |
| (in thousands, except share data) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
Stock-based compensation awards(1): | | |
| Stock options | 962,795 | 63,019 |
| Restricted stock to non-directors | 692,947 | 610,642 |
| Restricted stock to directors | 64,369 | 122,929 |
| Warrants: | | |
| Private placement warrants | 6,160,000 | 6,160,000 |
| Public warrants | 9,823,072 | 9,823,072 |
|
| | | | | | | | | |
| (in thousands, except share data) | Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
Stock-based compensation awards(1): | | | | | |
| Stock options | 577,500 |
| 584,375 |
| | 577,500 |
| 584,375 |
|
| Warrants: | | | | | |
| Private placement warrants | 6,160,000 |
| 6,160,000 |
| | 6,160,000 |
| 6,160,000 |
|
| Public warrants | 9,823,072 |
| 9,823,072 |
| | 9,823,072 |
| 9,823,072 |
|
———————————————————————————————
| |
(1) | SARs and Phantom Shares are payable in cash and will, therefore, have no impact on number of shares. |
(1) SARs and Phantom Shares are payable in cash so will have no impact on number of shares
Warrants and options are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s common stock price during the applicable period. Performance share units are considered anti-dilutive if the performance targets upon which the issuance of the shares is contingent have not been achieved and the respective performance period has not been completed as of the end of the current period.
17.Income Taxes
The provision for income taxes consists of provisions for federal, state, and foreign incomes taxes. The effective tax rates for the periods ended March 31, 2019, and March 31, 2018, reflect the Company’s expected tax rate on reported income from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in the U.S. and various other jurisdictions outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the Company’s earnings and the applicable tax rates in the various jurisdictions where the Company operates.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted in the U.S. The TCJA represents sweeping changes in U.S. tax law. Among other changes in tax law, the TCJA permanently reduced the U.S. corporate income tax rate to 21% beginning in 2018, imposed a one-time repatriation tax on deferred foreign earnings, established a participation exemption system by allowing a 100% dividends received deduction on qualifying dividends paid by foreign subsidiaries, limited deductions for net interest expense, and expanded the U.S. taxation of foreign earned income to include “global intangible low-taxed income” (“GILTI”).
The Company's effective tax rate for the three and nine months ended September 30, 2017March 31, 2019 was 27.6% and 101.1%, respectively, 4.5%compared to the effective tax rate for the three and nine months ended September 30, 2016March 31, 2018 of 39.0% and 37.9%, respectively.(38.4)%.
The effective tax rate for the three months ended September 30, 2017March 31, 2019 differs from the USU.S. statutory tax rate of 35%21%, primarily due to certain intercompany transactions that did not have a tax effect.
The effective tax rate for the nine months ended September 30, 2017 differs from the US statutory tax rate of 35% due to the release ofchange in the valuation allowance related to net deferred tax assets in the U.S. tax jurisdiction. There were a series of tax adjustments as a result of the April 2017 settlement with Dow that resulted in $40.0 million additional U.S. deferred tax liabilities. The reduction of the Company's obligations to Dow on the balance sheet impacted purchase price consideration, ultimately decreasing the Company’s intangible’s tax basis determined for ASC 740 purposes. The Company considered these future sources of taxable income as additional positive evidence when concluding the deferred tax assets within the U.S. were more likely thanare not able to be realized and reversed aother unbenefited losses. The cumulative unbenefited losses related to the elimination of intercompany profit in inventory, and the changes in the valuation allowance related to the Japan, Netherlands, and Turkey jurisdictions where there is not sufficient evidence to support future taxable income. In addition to the changes in valuation allowances, the effective tax rate is impacted by certain provisions of $15.4 million.the TCJA. The limitation and deductibility of U.S. interest expense, and the inclusion of GILTI reduced the overall tax benefit for the Company. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore did not provide any deferred taxes in the consolidated financial statements at March 31, 2019.
| |
17. | Commitments and Contingencies |
18.Segment Information
The authoritative guidance for disclosures about segments of an enterprise establishes standards for reporting information about segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. We currently operate and manage our business as two operating segments. Our chief operating decision-makers allocate resources and assess performance of the business for each segment. Accordingly, we consider ourselves to have two operating and reportable segments (i) AgroFresh core and (ii) Tecnidex. AgroFresh core business is providing produce preservation and waste reduction solutions for growers and packers. Its products include SmartFreshTM, HarvistaTM, RipelockTM and FreshCloud. Tecnidex is a provider of fungicides, sanitizers, waxes, and coatings primarily focused on the citrus market.
Our chief operating decision-makers do not evaluate operating segments using asset or liability information. The following table presents a breakdown of our revenues and gross profit based on reportable segments for three months ended March 31, 2019 and 2018.
| | | | | | | | |
| (in thousands) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| AgroFresh Core | | |
| Revenues | $ | 33,488 | $ | 32,762 |
| Gross Profit | 25,133 | 24,862 |
| Tecnidex | | |
| Revenues | 5,452 | 5,589 |
| Gross Profit | 2,472 | 2,643 |
| Total Revenues | $ | 38,940 | $ | 38,351 |
| Total Gross Profit | $ | 27,605 | $ | 27,505 |
19.Commitments and Contingencies
The Company is currently involved in various claims and legal actions that arise in the ordinary course of business. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it
is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. Although the results of litigation and claims can never be predicted with certainty, the Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s business, financial condition or results of operations.
Purchase Commitments
The Company has various purchasing contracts for contract manufacturing and research and development services which are based on the requirements of the business. Generally, the contracts are at prices not in excess of current market prices and do not commit the business to obligations outside the normal customary terms for similar contracts.
| |
18. | Fair Value Measurements |
20. Fair Value Measurements
Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the fair value of the Company’s financial instrumentsinstrument liability/(asset) that are measured at fair value on a recurring basis as of September 30, 2017:March 31, 2019:
| | | | | | | | | | | | | | |
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
| Tax amortization benefit contingency(1) | $ | — | $ | — | $ | 41,351 | $ | 41,351 |
| Contingent consideration(2) | — | — | 569 | 569 |
| | | | |
| Stock appreciation rights(3) | — | — | 72 | 72 |
| Phantom shares(4) | — | — | 447 | 447 |
| Total | $ | — | $ | — | $ | 42,439 | $ | 42,439 |
|
| | | | | | | | | | | | |
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
Tax amortization benefit contingency(2) | — |
| — |
| 69,599 |
| 69,599 |
|
Deferred acquisition payment(3) | — |
| — |
| 624 |
| 624 |
|
Stock appreciation rights(4) | — |
| — |
| 57 |
| 57 |
|
Phantom shares(5) | — |
| — |
| 32 |
| 32 |
|
| Total | $ | — |
| $ | — |
| $ | 70,312 |
| $ | 70,312 |
|
The following table presents the fair value of the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2016:2018:
| | | | | | | | | | | | | | |
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
| Tax amortization benefit contingency(1) | $ | — | $ | — | $ | 40,467 | $ | 40,467 |
| Contingent consideration related to acquisition(2) | — | — | 379 | 379 |
| Stock appreciation rights(3) | — | — | 146 | 146 |
| Phantoms shares(4) | — | — | 404 | 404 |
| Total | $ | — | $ | — | $ | 41,396 | $ | 41,396 |
|
| | | | | | | | | | | | |
| (in thousands) | Level 1 | Level 2 | Level 3 | Total |
Warrant consideration(1) | $ | — |
| $ | 1,080 |
| $ | — |
| $ | 1,080 |
|
Tax amortization benefit contingency(2) | — |
| — |
| 150,260 |
| 150,260 |
|
Deferred acquisition payment(3) | — |
| — |
| 2,498 |
| 2,498 |
|
Stock appreciation rights(4) | — |
| — |
| 22 |
| 22 |
|
Phantom shares(5) | — |
| — |
| 4 |
| 4 |
|
| Total | $ | — |
| $ | 1,080 |
| $ | 152,784 |
| $ | 153,864 |
|
———————————————————————————————
| |
(1) | This liability relates to warrants to purchase the Company's common stock and future obligations to deliver additional such warrants in relation to the Business Combination. The inputs used in the fair value measurement were directly observable quoted prices for identical assets in an inactive market. Refer to Note 3 for additional details. |
| |
(2) | The fair value of the tax amortization benefit contingency is measured using an income approach based on the Company's best estimate of the undiscounted cash payments to be made, tax effected at 37% and discounted to present value utilizing an appropriate market discount rate. The valuation technique used did not change during the nine months ended September 30, 2017. Refer to Note 3 for additional details. |
| |
(3) | The fair value of the deferred acquisition payment is measured using a Black-Scholes option pricing model and based on the Company's best estimate of the Company's average Business EBITDA, as defined in the Purchase Agreement (as defined in Note 3), over the two year period from January 1, 2016 to December 31, 2017. The valuation technique used did not change during the nine months ended September 30, 2017. |
(1) The fair value of the tax amortization benefit contingency is measured using an income approach based on the Company’s best estimate of the undiscounted cash payments to be made, with the current portion tax effected at 21.5% and the non-current portion tax effected at 21.5% due to the TCJA enacted in the U.S. and discounted to present value utilizing an appropriate market discount rate.
| |
(4) | The fair value of the stock appreciation rights were measured using a Black Scholes pricing model during the nine months ended September 30, 2017. The valuation technique used did not change during the nine months ended September 30, 2017. |
| |
(5) | The fair value of phantom shares are based on the fair value of the Company's common stock. The valuation technique used did not change during the nine months ended September 30, 2017. |
(2) The fair value of the contingent consideration related to the Tecnidex acquisition.
(3) The fair value of the stock appreciation rights was measured using a Black Scholes pricing model during the three months ended March 31, 2019. The valuation technique used did not change during the three months ended March 31, 2019.
(4) The fair value of phantom shares is based on the fair value of the Company's common stock. The valuation technique used did not change during the three months ended March 31, 2019.
There were no transfers between Level 1 and Level 2 and no transfers out of Level 3 of the fair value hierarchy during the ninethree months ended September 30, 2017.March 31, 2019.
At September 30, 2017,March 31, 2019, the Company evaluated the amount recorded under the Term Loan and determined that the fair value was approximately $416.5$401.0 million. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.
Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis
The following table presents the changes during the period presented in our Level 3 financial instrumentsinstrument liability/(asset) that are measured at fair value on a recurring basis. These instruments relate to contingent consideration payable to Dow in connection to the Business Combination.
| | | | | | | | | | | | | | | | | |
| (in thousands) | Tax amortization benefit contingency | Contingent consideration related to acquisition | Stock appreciation rights | Phantom shares | Total |
| Balance, December 31, 2018 | $ | 40,467 | $ | 379 | $ | 146 | $ | 404 | $ | 41,396 |
| Accretion | 884 | — | — | — | 884 |
| Tecnidex acquisition | — | 190 | — | — | 190 |
| Stock compensation expense | — | — | (74) | 43 | (31) |
| | | | | |
| Balance, March 31, 2019 | $ | 41,351 | $ | 569 | $ | 72 | $ | 447 | $ | 42,439 |
|
| | | | | | | | | | | | | | | |
| (in thousands) | Tax amortization benefit contingency | Deferred acquisition payment | Stock appreciation rights | Phantom shares | Total |
| Balance, December 31, 2016 | $ | 150,260 |
| $ | 2,498 |
| $ | 22 |
| $ | 4 |
| $ | 152,784 |
|
| Awards granted | — |
| — |
| — |
| — |
| — |
|
| Settlement of Dow liabilities | (86,931 | ) | — |
| — |
| — |
| (86,931 | ) |
| Accretion | 7,297 |
| — |
| — |
| — |
| 7,297 |
|
| Mark to market adjustment | (1,027 | ) | (1,874 | ) | 35 |
| 28 |
| (2,838 | ) |
| Balance, September 30, 2017 | $ | 69,599 |
| $ | 624 |
| $ | 57 |
| $ | 32 |
| $ | 70,312 |
|
On November 7, 2017, the Company entered into a definitive agreement to acquire a controlling-interest in Tecnidex Fruit Protection, S.A.U. ("Tecnidex"). Tecnidex, a privately-held international company, is a leading providerTable of post-harvest fungicides, waxes, and biocides for the citrus market, with clients in 18 countries. For over 35 years, Tecnidex has been helping fruit and vegetable producers offer clean, safe and high-quality products to its regional clients.Contents
The purchase price is approximately €22.5 million (or approximately $26.1 million based on the exchange rate as of November 7, 2017), subject to customary purchase price adjustments, payable in cash. The Company expects to fund the acquisition with cash on hand, and following the acquisition the Company will own 75 percent of the outstanding Tecnidex shares. The Company has an option to purchase the remaining shares over time. The acquisition will be treated as a business combination.
Due to the timing of the acquisition, the Company has not yet completed its initial accounting analysis. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction including any intangible assets or goodwill. The transaction is expected to close as soon as the fourth quarter of 2017.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), the terms “Company,” “AgroFresh,” “we,” “us” and “our” refer to AgroFresh Solutions, Inc. and its consolidated subsidiaries, unless the context otherwise requires or it is otherwise indicated.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Report.
This MD&A contains the financial measure EBITDA, which is not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP"). This non-GAAP financial measure is being presented because management believes that it provides readers with additional insight into the Company’s operational performance relative to earlier periods and relative to its competitors. EBITDA is a key measure used by the Company to evaluate its performance. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. Readers of this MD&A should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure. A reconciliation of EBITDA to the most comparable GAAP measure is provided in this MD&A.
Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements in this MD&A regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual results and/or the timing of events could differ materially from those contemplated by these forward-looking statements due to a number of factors, including those discussed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162018 (the "2016"2018 Form 10-K") as well as the update to those Risk Factors disclosed in Part II, Item 1A of this Report. Any forward-looking statements included in this Report are based only on information currently available to the Company bandand speak only as of the date on which such statements are made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are qualified in their entirety by this paragraph.
Business Overview
AgroFresh is a global leader in delivering innovative food preservation and waste reduction solutions for fresh produce, including apples, pears, citrus, kiwifruit, avocados and bananas, among others. Our proprietary and innovative solutions are designed to help growers, packers, and retailers improve produce freshness and quality while reducing waste.
AgroFresh’s market leadership is underpinned by our global footprint, extensive applied scientific expertise, customer intimacy, and a growing portfolio of value-added products and mission-critical advisory services. Our key products are registered in over 50 countries, support approximately 3,900 direct customers, and service over 25,000 storage rooms globally. In addition, we offer a comprehensive list of solutions spanning from near-harvest to post-harvest, from storage through retail. More importantly, we believe that our direct market approach and high touch service model best position us to address our customers’ needs. We believe this is a key differentiator compared to other companies that have narrower product offerings and limited service levels.
Freshness is the most important driver of consumer satisfaction when it comes to produce, and, at the same time, food waste is a major issue in the industry. About one third ofAccording to the total food produced worldwide is lost or wasted each year. Nearly 45 percent of all freshU.N.’s Food and Agricultural Organization, fruits and vegetables 40 percenthave the highest waste rates of apples and 20 percent of bananas, are lost to spoilage.any food, estimated at 40%-50% globally. AgroFresh plays a key role in the value chain by offering products and services that maintain produce freshness and reduce waste.
AtAgroFresh’s core business is providing produce preservation and waste reduction solutions for growers and packers. SmartFreshTM, our current principal solution, preserves the coretexture, firmness, taste and appearance of produce during storage, transportation and retail display. It allows growers and packers to deliver “just harvested” freshness on a year-round basis and enables retailers to increase customer satisfaction with fresh, high quality produce. An integral part of the SmartFresh Quality SystemSMvalue
proposition is AgroFresh’s principal product,a direct service model providing customers with on-site applications of SmartFresh which regulatesat their storage facilities together with mission-critical and value-added advisory services.
In December 2017, AgroFresh acquired a controlling interest in Tecnidex Fruit Protection, S.A.U. ("Tecnidex"). With this acquisition, AgroFresh expanded its post-harvest leadership into additional crops, and increased its penetration of the post-harvest ripening effects of ethylene, the naturally occurring plant hormone that triggers ripeningproduce market in certain fruitssouthern Europe, Latin America and vegetables. SmartFresh is naturally biodegradable, leaves no detectable residue, andAfrica. For over 35 years, Tecnidex has been approvedhelping fruit and vegetable producers offer clean, safe and high-quality products to customers, now reaching 18 countries. Tecnidex is a leading provider of fungicides, sanitizers, waxes, and coatings primarily focused on the citrus market. The Tecnidex acquisition brought a broad catalogue of solutions that enhanced AgroFresh’s fungicide offering, ActiMistTM, an innovative delivery system of foggable fungicides. AgroFresh’s fungicide offerings further diversify our revenue by expanding our ability to provide solutions and service to the citrus industry. Tecnidex is based in Valencia, Spain.
Complementing our post-harvest solutions, HarvistaTM technology is used for use by many domestic and global regulatory organizations. Harvista extends the Company’s proprietary technology into pre-harvestnear harvest management of pome fruit, such as apples, pears, and pears. StoreEdgecherries. Just as SmartFresh revolutionized post-harvest apple storage, we believe Harvista can have a similar impact in the orchard. Harvista slows ripening, reduces fruit drop, and holds fruit on the tree longer to promote better color and fruit size, thereby bringing new benefits to the grower. With maximum flexibility in application timing, it extends the harvest window by allowing growers to factor in ever-changing weather conditions and labor availability, providing peace of mind. Finally, we have found that the combination of Harvista in the orchard and SmartFresh in the storage room results in improved fruit quality metrics compared to use of either product individually.
AgroFresh provides freshness solutions across the supply chain, wherever waste occurs. For many crops, much of the waste occurs at retail. This includes bananas, one of the largest retail produce categories, where, according to internal analysis based on data from Journal of Consumer Affairs and United Nation’s Food and Agriculture Organization, it is estimated that 12-16% of banana loss occurs after the fruit reaches the grocery store. Our RipeLockTM Quality System is a retail solution to improve the quality and AdvanStoreconsumer appeal of bananas. RipeLock enables retailers to offer consumers bananas that are in better condition and maintain the consumer-preferred color and firmness longer, reducing waste and increasing sales.
To continue to evolve and increase the value we provide to our customers, AgroFresh recently launched our FreshCloudTM are atmospheric suite of produce monitoring systems that leverageand screening solutions. FreshCloud is the Company’s extensive understandingculmination of our decades-long history of innovation and scientific know-how in the physiology of fruits and vegetables. FreshCloud consists of both enhancements to our existing service offerings, as well as new innovations. FreshCloud Storage InsightsTM, the next generation of AdvanStore, combines proprietary sensor technology and data analytics in the storage room to offer customers real-time access to unique insights into the condition of their stored fruit. FreshCloud Predictive ScreeningTM, which predicts the risk of disorder development during storage by analyzing gene expression at commercial harvest, allows for more informed storage management decisions. FreshCloud Transit InsightsTM combines sensor technology and proprietary algorithms to provide insights as to the condition and quality of fruit physiology, fruit respiration, current controlled atmosphere technology, and new proprietary diagnostic tools to provide improved and real time guidance to producers and packers of fresh produce regarding storage conditions so corrective measures can be made on a more timely basis.during transit.
Beyond the SmartFresh Quality System, RipeLockTM combines the technology behind SmartFresh with modified atmosphere packaging designed specifically to preserve quality during transportation and to extend the yellow shelf life of bananas and other fruits. LandSpringTM is an innovative 1-MCP technology for transplanted vegetable seedlings that is currently registered for use on 14 crops in the U.S. (except California), most notably tomatoes and peppers. It reduces transplant shock, resulting in less seedling mortality and faster crop establishment, which leads to a healthier crop and improved yields. EthylBlocTM technology is an ethylene action inhibitor that works naturally with flowers and plants to keep them fresh during shipping and distribution. The negative effects of ethylene have been estimated by the industry to cause up to 30 percent of losses among all flowers and plants.
AgroFresh’s business is highly seasonal, driven by the timing of harvests in the northern and southern hemispheres. The first half of the year is when the southern hemisphere harvest occurs, and the second half of the year is when the northern hemisphere harvest occurs. Since the northern hemisphere harvest of our two core crops of apples and pears is typically larger, a significant portion of our sales and profits are historically generated in the second half of the year. In addition to this seasonality, factors such as weather patterns may impact the timing of the harvest within the two halves of the year.
AgroFresh is a former blank check company that completed its initial public offering on February 19, 2014. Upon the closing of the Business Combination with Dow on July 31, 2015, the Company changed its name to AgroFresh Solutions, Inc. The Company paid Dow cash consideration of $635 million and issued Dow 17.5 million shares of common stock at a deemed value of $12 per share. The transaction included a liability to Dow to deliver a variable number of warrants between the closing and April 2016, which obligation was terminated pursuant to a letter agreement entered into on April 4, 2017. The cash consideration was funded through our initial public offering, a term loan, and a private placement of 4.9 million shares of common stock that yielded $50 million of proceeds. The transaction also has an earn-out feature whereby Dow is entitled to receive a deferred payment of $50 million in March 2018 if AgroFresh achieves a specified average level of Business EBITDA (as defined in the Stock Purchase Agreement related to the Business Combination) over 2016 and 2017. In addition, pursuant to a tax receivables agreement entered into in connection with the Business Combination, Dow was originally entitled to receive 85% of the tax savings, if any, that the Company realizes as a result of the increase in the tax basis of assets acquired pursuant to the Business Combination. Pursuant to an amendment to the tax receivables agreement entered into on April 4, 2017, the percentage was reduced from 85% to 50% for all tax years ending after December 31, 2015.
In connection with the closing of the Business Combination, AgroFresh entered into a transition services agreement with Dow. Under the agreement, Dow provides AgroFresh a suite of services for a period of time ranging from six months to five years depending on the service. However, the Company expects to terminate these services by December 31, 2017. The agreement also provided for a $5 million execution fee that was paid to Dow at the closing of the Business Combination.
Recent Development
On November 7, 2017, AgroFresh signed a definitive agreement to acquire a controlling-interest in Tecnidex, a leading provider of post-harvest fungicides, waxes, and biocides for the citrus market. With this acquisition, AgroFresh expands its industry-leading post-harvest presence into additional crops, and increases its penetration of the produce market in southern Europe, Latin America and Africa.
For over 35 years, Tecnidex has been helping fruit and vegetable producers offer clean, safe and high-quality products to its regional clients in 18 countries. Through its portfolio of post-harvest products, technology, consulting, and after-sale services, Tecnidex improves the quality and value of its clients’ fruit and vegetables while respecting the environment. Tecnidex is based in Valencia, Spain.
Factors Affecting the Company’s Results of Operations
The Company’s results of operations are affected by a number of external factors. Some of the more important factors are briefly discussed below.
Demand for the Company’s Offerings
The Company services over 3,000 customers in over 4050 countries and derives its revenue by assisting growers, packers and retailers to maximizeoptimize the value of their crops brought to market and consumers.market. The Company's products and services add value to customers by reducing food spoilage and extending the life of perishable fruits. The U.S. Food and Agriculture Organization has estimated that a growing global population will require a near doubling of food production in developing countries by 2050 to meet the expected demand of a worldwide population of 9 billion people.
This global trend, among others, creates demand for the Company’s solutions. The Company’s offerings are currently protected by patents on, among other things, the encapsulationpatent filings in 55 countries.
The global produce market is a function of both the size and the yield of the crop harvested; variations in either will affect total production. Given the nature of the agricultural industry, weather patterns may impact total production and the Company's resulting commercial opportunities. The Company supports a diverse customer base whose end markets vary due to the type of fruit and quality of the product demanded in their respective markets. Such variation across end markets also affects demand for the Company’s services.
Customer Pricing
The Company’s offerings are priced based on the value they provide to the Company’s customers. From time to time, the Company adjusts the pricing of its offeringofferings depending on the volume of fruit treated, or in order to address specific market trends. The SmartFresh Quality System continues to expand its platform of services, which may have an impact on price. The Company provides a value addedvalue-added service and does not typically price its products in relation to any underlying cost of materials; therefore, its margins can fluctuate with changes in the costs to provide its services to customers. The Company’s pricing may include rebate arrangements with customers in exchange for mutually beneficial long-term relationships and growth.
Direct Service ModelWhole Product Offering
The AgroFresh offersWhole Product offering is a direct service model for the Company’s commercially available products, including SmartFresh and Harvista. Sales and sales support personnel maintain direct face-to-face relationships with customers year round. Technical sales and support personnel work directly with customers to provide value-added advisory services regarding the application of SmartFresh. TheTypically, third party contractors perform the actual application of SmartFresh is performed by service providers that are typically third-party contractors. . The Harvista application service, through both aerial and ground application, is also administered by third-party service providers or made by our customers directly. The combination of SmartFresh and Harvista treatments are designed to provide the best results to customers.
The Company is shifting the terms of its contracts with service providers from annual renewal periods to two or three year durations in order to have greater certainty that experienced applicators will be available for upcoming harvest seasons. Most of the Company’s service providers are operating under multi-year contracts. Management believes the quality and experience of its service providers deliver clear commercial benefits.
Seasonality
The Company’s operations are subject to seasonal variation due to the timing of the growing seasons around the world. Northern Hemisphere growers typically harvest from August through November, and Southern Hemisphere growers typically harvest from late January to early May. Since the majority of the Company’s sales are in Northern Hemisphere countries, a proportionately greater share of its revenue is realized during the second half of the year. There are also variations in the seasonal demands from year to year depending on weather patterns and crop size. This seasonality and variations in seasonal demand could impact the ability to compare results between periods. As the Company diversifies into other crops and becomes less dependent on pome fruit, the Company expects that the impacts of seasonality will lessen.
Foreign Currency Exchange Rates
With a global customer base and geographic footprint, the Company generates revenue and incurs costs in a number of different currencies, with the Euro comprising the most significant non-U.S. currency. Fluctuations in the value of these currencies relative to the U.S. dollar can increase or decrease the Company’s overall revenue and profitability as stated in U.S. dollars, which is the Company’s reporting currency. In certain instances, if sales in a given geography have been adversely impacted on a long-term basis due to foreign currency depreciation, the Company has been able to adjust its pricing so as to mitigate the impact on profitability.
Domestic and Foreign Operations
The Company has both domestic and foreign operations. Fluctuations in foreign exchange rates, regional growth-related spending in research and development (“R&D”) and marketing expenses, and changes in local selling prices, among other factors, may impact the profitability of foreign operations in the future.
Critical Accounting Policies and Use of Estimates
Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations and that require the use of complex and subjective estimates based upon management’s judgment. Because of the uncertainty inherent in such estimates, actual results may differ materially from these estimates. ThereAside from the adoption of ASC 842, there have been no material changes to our critical accounting policies and estimates previously disclosed in our 2016the 2018 Form 10-K for the year ended December 31, 2016.10-K. For a description of our critical accounting policies and estimates as well as a listing of our significant accounting policies, see “Management's Discussion and Analysis of Financial Condition and Results of
Operations -
Critical Accounting Policies and Use of Estimates” and “Note 2 - Basis of Presentation and Summary of Significant Accounting Policies” in our 2016the 2018 Form 10-K.
Results of Operations
The following table summarizes the results of operations for both the three and nine months ended September 30, 2017March 31, 2019 and September 30, 2016:March 31, 2018:
| | | | | | | | |
| (in thousands) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Net sales | $ | 38,940 | $ | 38,351 |
| Cost of sales (excluding amortization, shown separately below) | 11,335 | 10,846 |
| Gross profit | 27,605 | 27,505 |
| Research and development expenses | 3,897 | 3,069 |
| Selling, general, and administrative expenses | 15,898 | 16,311 |
| Amortization of intangibles | 11,616 | 10,939 |
| Change in fair value of contingent consideration | 190 | 138 |
| Operating loss | (3,996) | (2,952) |
| Other (expense) income | (12) | 70 |
| (Loss) gain on foreign currency exchange | (419) | 1,931 |
| Interest expense, net | (8,745) | (8,355) |
| Loss before income taxes | (13,172) | (9,306) |
| (Benefit) provision for income taxes | (587) | 3,570 |
| Net loss including non-controlling interests | $ | (12,585) | $ | (12,876) |
| Less: Net income attributable to non-controlling interests | 34 | 91 |
| Net loss attributable to AgroFresh Solutions, Inc | (12,619) | (12,967) |
|
| | | | | | | | | | | | | |
| (in thousands) | Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| Net sales | $ | 60,772 |
| $ | 61,200 |
| | $ | 109,891 |
| $ | 107,996 |
|
| Cost of sales (excluding amortization, shown separately below) | 11,620 |
| 8,905 |
| | 21,365 |
| 48,558 |
|
| Gross profit | 49,152 |
| 52,295 |
| | 88,526 |
| 59,438 |
|
| Research and development expenses | 3,071 |
| 2,983 |
| | 10,103 |
| 11,220 |
|
| Selling, general, and administrative expenses | 14,462 |
| 15,173 |
| | 44,328 |
| 49,385 |
|
| Amortization of intangibles | 10,445 |
| 10,080 |
| | 31,335 |
| 29,878 |
|
| Change in fair value of contingent consideration | (1,424 | ) | (1,569 | ) | | (2,420 | ) | (4,969 | ) |
| Operating income (loss) | 22,598 |
| 25,628 |
| | 5,180 |
| (26,076 | ) |
| Other (expense) income | (295 | ) | (38 | ) | | (40 | ) | 16 |
|
| (Loss) gain on foreign currency exchange | (487 | ) | 924 |
| | 10,584 |
| 682 |
|
| Interest expense, net | (8,638 | ) | (14,526 | ) | | (27,495 | ) | (43,850 | ) |
| Income (loss) before income taxes | 13,178 |
| 11,988 |
| | (11,771 | ) | (69,228 | ) |
| Income tax expense (benefit) | 3,632 |
| 4,676 |
| | (11,895 | ) | (26,239 | ) |
| Net income (loss) | $ | 9,546 |
| $ | 7,312 |
| | $ | 124 |
| $ | (42,989 | ) |
Comparison of Results of Operations for the three months ended September 30, 2017March 31, 2019 compared to the three months ended September 30, 2016.March 31, 2018.
Net Sales
Net sales were $60.8$38.9 million for the three months ended September 30, 2017March 31, 2019, as compared to net sales of $61.2$38.4 million for the three months ended September 30, 2016.March 31, 2018, an increase of 1.5%. The decreaseimpact of the change in foreign currency exchange rates compared to the first quarter of 2018 reduced revenue by $0.6 million. Excluding this impact, revenue increased approximately 3%.
The increase in net sales was primarily driven by lower volumegrowth in our core business, which includes SmartFresh and Harvista, in our Middle East and Africa region, with particular strength in South Africa. We also experienced growth in sales of EthylBloc product, which is used to preserve cut flowers, and in FreshCloud, the Company's newest product offering. Additionally, Tecnidex performed well, growing 5% overall on SmartFresha constant currency basis, driven by a late crop18% constant currency growth in the U.S., which wasour fungicide, waxes and coatings business, partially offset by an increasea decline in our equipment business due to timing of $1.1 millionorder delivery. In the Latin America region, the Company's core business was impacted by a delayed season. We also realized our first commercial sales of Harvista in Harvista sales.Australia.
Cost of Sales
Cost of sales was $11.3 million for the three months ended March 31, 2019 as compared to $10.8 million for the three months ended March 31, 2018. Gross profit margin was 70.9% for the three months ended March 31, 2019 versus 71.7% for the three months ended March 31, 2018. The change was in line with our expectations, and mostly due to foreign exchange and product mix.
Research and Development Expenses
Research and development expenses were $3.9 million and $3.1 million, respectively, for the three months ended March 31, 2019 and March 31, 2018. The increase in research and development expenses was primarily driven by $0.5 million of severance costs associated with ongoing cost optimization initiatives along with timing of project expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $15.9 million for the three months ended March 31, 2019 compared to $16.3 million for the three months ended March 31, 2018, a decrease of 2.5%. Included in selling, general and administrative expenses
were $3.2 million in the current year and $2.0 million in the prior year of costs associated with non-recurring items that include M&A and litigation along with severance. Excluding these items, selling general and administrative expenses decreased approximately 12% over the same period last year.
Amortization of Intangibles
Amortization of intangible assets was $11.6 million for the three months ended September 30, 2017 asMarch 31, 2019 compared to $8.9$10.9 million for the three months ended September 30, 2016. Gross profit margin was 85.4 percent in the third quarter of 2016 versus 80.9 percent in the third quarter of 2017. This decrease in margin was primarily driven by an unfavorable mix towards lower margin with the decrease in SmartFresh and increase in Harvista sales.March 31, 2018.
Research and Development Expenses
Research and development expenses were $3.1 million for the three months ended September 30, 2017 as compared to $3.0 million for the three months ended September 30, 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $14.5 million for the three months ended September 30, 2017 compared to $15.2 million for the three months ended September 30, 2016. This decrease in selling, general and administrative expenses was primarily driven by efficiency and productivity improvements as we begin the transition off the Dow systems, along with lower severance costs, partially offset by higher expenses relating to mergers and acquisitions ("M&A")-related activities.
Amortization of Intangibles
Amortization of intangible assets was $10.4 million for the three months ended September 30, 2017 compared to $10.1 million for the three months ended September 30, 2016. The increase in amortization of intangibles is primarily due to the amortization of in-process research and development for our LandSpring product line, which started in September 2016.
Change in Fair Value of Contingent Consideration
The Company recorded a $1.4$0.2 million gain in the three months ended September 30, 2017March 31, 2019 related to a change in the fair value of contingent consideration, as compared to a $1.6$0.1 million gain in the three months ended September 30, 2016.March 31, 2018. As discussed in Note 3 toof the 2016 auditedunaudited condensed consolidated financial statements, pursuant to the Business Combination,Company’s business combination with The Dow Chemical Company (“Dow”) that was consummated on July 31, 2015 (the “Business Combination"), the Company entered into various forms of contingent consideration, including the warrant consideration, the deferred payment, and the tax amortization benefit contingency. These liabilities are measured at fair value each reporting date and any mark-to-market fluctuations are recognized in earnings. For the three months ended September 30, 2017, the deferred payment and the tax amortization benefit contingency gains were $0.6 million and $0.8 million, respectively.
Interest Expense, Net
Interest expense was $8.6$8.7 million for the three months ended September 30, 2017,March 31, 2019, as compared to $14.5$8.4 million for the three months ended September 30, 2016. AccretionMarch 31, 2018.
(Loss) gain on foreign currency
Loss on foreign currency was $0.4 million for the potential deferred paymentthree months ended March 31, 2019, as compared to Dowa $1.9 million gain for the three months ended March 31, 2018.
Income Taxes
Income tax benefit was $0.6 million for the three months ended March 31, 2019 compared to income tax expense of $3.6 million for the three months ended September 30, 2016, without a comparable expense in 2017. Lower accretion of the Tax Receivables Agreement of $2.2 million also contributed to the decrease in interest expense.
Income taxes
Income tax expense was $3.6 million forMarch 31, 2018. During the three months ended September 30, 2017 compared to income tax expense of $4.7 million for the three months September 30, 2016. The effective tax rate for the three months ended September 30, 2017 differs from the U.S. statutory tax rate of 35% due toMarch 31, 2019, certain intercompany transactionslosses occurred that did not havereceive a tax effect.
Comparisonbenefit. The cumulative unbenefited losses relate to the elimination of Resultsintercompany profit in inventory. There were also changes in valuation allowances within the Japan, Netherlands, and Turkey tax jurisdictions. In addition to the unbenefited losses, certain provisions of Operationsthe TCJA impacted the Company. The limitation and deductibility of U.S. interest expense, and the inclusion of GILTI reduced the overall tax benefit for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.Company.
Net Sales
Net sales were $109.9 million for the nine months ended September 30, 2017 as compared to net sales
Cost of Sales
Cost of sales was $21.4 million for the nine months ended September 30, 2017 as compared to $48.6 million for the nine months ended September 30, 2016. The amount in the prior year period includes $30.4 million of amortization of inventory step up. If the amortization of inventory step-up is excluded, gross profit margin would have been 83.2 percent in the first nine months of 2016 versus 80.6 percent in the first nine months of 2017. The decrease in margin was primarily driven by an unfavorable mix towards lower margin with the decrease in SmartFresh and increase in Harvista sales.
Research and Development Expenses
Research and development expenses were $10.1 million for the nine months ended September 30, 2017 as compared to $11.2 million for the nine months ended September 30, 2016. The decrease in research and development expenses reflects more targeted research activities in 2017.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $44.3 million for the nine months ended September 30, 2017 compared to $49.4 million for the nine months ended September 30, 2016. This decrease in selling, general and administrative expenses was primarily driven by lower non-recurring costs to establish ourselves as a separate public company, lower severance costs and
lower stock-based compensation, which was partially offset by legal fees associated with the MirTech litigation described below and M&A-related expenses.
Amortization of Intangibles
Amortization of intangible assets was $31.3 million for the nine months ended September 30, 2017 compared to $29.9 million for the nine months ended September 30, 2016. The increase in amortization of intangibles is primarily due to the amortization of in-process research and development for our LandSpring product line, which started in September 2016.
Change in Fair Value of Contingent Consideration
The Company recorded a $2.4 million gain in the nine months ended September 30, 2017 related to a change in the fair value of contingent consideration, as compared to a $5.0 million gain in the nine months ended September 30, 2016. As discussed in Note 3 to the 2016 audited consolidated financial statements, pursuant to the Business Combination, the Company entered into various forms of contingent consideration, including the warrant consideration, the deferred payment, and the tax amortization benefit contingency. These liabilities are measured at fair value each reporting date and any mark-to-market fluctuations are recognized in earnings. For the nine months ended September 30, 2017, the warrant consideration, the deferred payment, and the tax amortization benefit contingency losses (gains) were $0.5 million, $(1.9) million, and $(1.0) million, respectively.
Interest Expense, Net
Interest expense was $27.5 million for the nine months ended September 30, 2017, as compared to $43.9 million for the nine months ended September 30, 2016. Accretion on the potential deferred payment to Dow was $10.7 million for the nine months ended September 30, 2016, without a comparable expense in 2017. Interest on the working capital settlement with Dow was $0.6 million for the nine months ended September 30, 2016, without a comparable expense in 2017. Lower accretion of the Tax Receivables Agreement of $4.9 million also contributed to the decrease in interest expense.
Income taxes
The income tax benefit was $11.9 million for the nine months ended September 30, 2017 compared to income tax benefit of $26.2 million for the nine months September 30, 2016. During the nine months ended September 30, 2017, in accordance with ASC 740, Income Taxes, we released the full valuation allowance against the net deferred tax assets in the U.S. tax jurisdiction, including net operating loss deferred tax assets. During the nine months ended September 30, 2017, we increased our deferred tax liabilities associated with intangibles due to the April 2017 settlement with Dow. The reduction of our obligations to Dow reduced purchase price consideration, which had a corresponding decrease to the tax basis of intangibles determined for ASC 740 purposes leading to the deferred tax liability increase. We considered these future sources of taxable income as positive evidence when concluding whether the deferred tax assets within the U.S. were more likely than not to be realized. We will continue to monitor the realizability of the U.S. deferred tax assets.
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 a reconciliation between the non-GAAP financial measure of EBITDA to its most directly comparable GAAP financial measure, net income (loss):loss:
|
| | | | | | | | | | | | | |
| (in thousands) | Three Months Ended
September 30, 2017 | Three Months Ended
September 30, 2016 | | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| GAAP net income (loss) | $ | 9,546 |
| $ | 7,312 |
| | $ | 124 |
| $ | (42,989 | ) |
| Income tax expense (benefit) | 3,632 |
| 4,676 |
| | (11,895 | ) | (26,239 | ) |
Amortization of inventory step-up(1) | — |
| — |
| | — |
| 30,377 |
|
Interest expense(2) | 8,638 |
| 14,526 |
| | 27,495 |
| 43,850 |
|
| Depreciation and amortization | 11,056 |
| 10,438 |
| | 33,102 |
| 31,777 |
|
| Non-GAAP EBITDA | $ | 32,872 |
| $ | 36,952 |
| | $ | 48,826 |
| $ | 36,776 |
|
| | | | | | | | |
| (in thousands) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| GAAP net loss including non-controlling interests | $ | (12,585) | $ | (12,876) |
| (Benefit) provision for income taxes | (587) | 3,570 |
Interest expense(1) | 8,745 | 8,355 |
| Depreciation and amortization | 12,061 | 11,273 |
| Non-GAAP EBITDA | $ | 7,634 | $ | 10,322 |
———————————————————————————————
| |
(1) | The amortization of inventory step-up related to the acquisition of AgroFresh was charged to income based on the pace of inventory usage. |
| |
(2) | (1) Interest on the term loan and accretion for debt discounts, debt issuance costs and contingent consideration. |
Liquidity and Capital Resources
Cash Flow
| | | | | | | | |
| (in thousands) | Three Months Ended
March 31, 2019 | Three Months Ended
March 31, 2018 |
| Net cash provided by operating activities | 8,978 | 3,417 |
| Net cash used in investing activities | (2,836) | (1,905) |
| Net cash used in financing activities | (722) | (11,407) |
|
| | | | |
| (in thousands) | Nine Months Ended
September 30, 2017 | Nine Months Ended
September 30, 2016 |
| Net cash provided by (used in) operating activities | 14,919 |
| (5,123 | ) |
| Net cash (used in) investing activities | (6,232 | ) | (5,441 | ) |
| Net cash (used in) financing activities | (12,125 | ) | (4,676 | ) |
Cash provided by (used in) operating activities was $14.9$9.0 million for the ninethree months ended September 30, 2017,March 31, 2019, as compared to $(5.1)cash provided by operating activities of $3.4 million for the ninethree months ended September 30, 2016.March 31, 2018. In 2017,2019, net loss before non-cash depreciation and amortization and changes in fair value of contingent consideration (including accretion) was $0.6 million. Other non-cash charges included stock-based compensation of $0.6 million, $0.6 million of deferred financing costs, a $1.8 million decrease in the net deferred taxes, interest income recognized on the interest rate swap of $(0.4) million, and other non-cash items of $(0.3) million. Additionally, the change in net operating assets was $9.7 million in 2019. For the three months ended March 31, 2018, net income before non-cash depreciation and amortization and changes in fair value of contingent consideration (including accretion) was $38.1$(1.5) million. Other non-cash charges included stock-based compensation on equity-classified awards of $1.3$0.6 million, $1.8$0.6 million of deferred financing costs, a $16.4$3.6 million increase in the net deferred tax asset, and other non-cash items of $0.7$0.4 million. Additionally, the change in net operating assets was $(10.5) million in 2017. For the nine months ended September 30, 2016, net income before non-cash depreciation and amortization, amortization of inventory step-up, and changes in the fair value of contingent consideration (including accretion) was $37.1 million. Other non-cash charges included stock-based compensation on equity-classified awards of $2.9 million, a $24.9 million increase in the net deferred tax asset, and other non-cash items of $2.6 million. Additionally, the change in net operating assets was $(22.8)$(0.4) million for the ninethree months ended September 30, 2016.March 31, 2018.
Cash (used in)used in investing activities was $(6.2)$(2.8) million for the ninethree months ended September 30, 2017,March 31, 2019, as compared to $(5.4)$(1.9) million for the ninethree months ended September 30, 2016.March 31, 2018. Cash used in investing activities in 20172019 was for the purchase of fixed assets and leasehold improvements of $(2.6) million and for other investments of $(0.3) million. Cash used in 2018 was for the purchase of fixed assets and leasehold improvements of $(5.3)$(1.9) million and technology investments of $(1.1) million. .
Cash used in 2016 was for the purchase of fixed assets and leasehold improvements, of $(5.4) million.
Cash (used in) financing activities was $(12.1)$(0.7) million for the ninethree months ended September 30, 2017,March 31, 2019, as compared to $(4.7)$(11.4) million for the ninethree months ended September 30, 2016.March 31, 2018. Cash used in financing activities in 20172019 was for the repayment of debt in the amount of $(2.1)$(0.7) million. Cash used in 2018 was for the repayment of debt in the amount of $(1.4) million and the $(10.0) million payment related to the Dow liabilities settlement. Cash used in 2016 was for the repayment of debt in the amount of $(3.2) million and the purchase of treasury stock in the amount of $(1.5) million.
Liquidity
Since the consummation of the Business Combination, we have financed our operations primarily through the sale of stock, debt financings, and sales of our products and services. At September 30, 2017,March 31, 2019, we had $75.4$40.0 million of cash and cash equivalents, compared to $77.3$34.9 million at December 31, 2016.2018.
On July 31, 2015, the Company consummated the Business Combination, pursuant to which the Company issued 17,500,000 shares
Term Loan
On July 31, 2015, certain of our subsidiaries entered into a Credit Agreement with Bank of Montreal, as administrative agent (the “Credit Facility”). The Credit Facility consists of a $425$425.0 million term loan (the “Term Loan”), with an amortization equal to 1.00% per year, and a $25 million revolving loan facility (the “Revolving Loan”). On January 31, 2019, the Revolving Loan was amended to reduce the total availability from $25.0 to $12.5, extend the maturity date from July 31, 2019 to December 31, 2020 and to amend certain financial covenants. The Revolving Loan includes a $10.0 million letter-of-credit sub-facility, issuances against which reduce the available capacity for borrowing. As of September 30, 2017, the Company had issued $0.5 million of letters of credit, against which no funds have been drawn. The Term Loan has a scheduled maturity date of July 31, 2021, and the Revolving Loan has a scheduled maturity date of JulyDecember 31, 2019.2020. The interest rates on borrowings under the facilities are either the alternate base rate plus 3.75%, or LIBOR plus 4.75% per annum, with a 1.00% LIBOR floor (with step-downs in respect of borrowings under the Revolving Loan dependent upon the achievement of certain financial ratios). The obligations under the Credit Facility are secured by liens on substantially all of the assets of (a) AgroFresh Inc. and its direct wholly-owned domestic subsidiaries, and (b) AF Solutions Holdings, LLC, including the common stock of AgroFresh Inc.
The net proceeds of the Term Loan were used to fund a portion of the purchase price payable to RohmRohm and HaasHaas Company, a subsidiary of Dow, in connection with the Business Combination. Amounts available under the Revolving Loan may also be used for working capital, general corporate purposes, and other uses, all as more fully set forth in the Credit Facility.
As of March 31, 2019, the Company was in compliance with the senior secured net leverage covenant and the other covenants in the facility.
As of the Closing Date the Company incurred approximately $12.9 million in debt issuance costs related to the Term Loan and $1.3 million in costs related to the Revolving Loan. The debt issuance costs associated with the Term Loan were capitalized against the principal balance of the debt, and the Revolving Loan costs were capitalized in Other Assets. All issuance costs will be accreted through interest expense for the duration of each respective debt facility. The accretion in interest expense during the three and nine months ended September 30, 2017 March 31, 2019 and 2018 was approximately $0.6 million and $1.8 million.$0.6 million, respectively.
PIPE Shares
In connection with the closing of the Business Combination, the Company issued an aggregate of 4,878,000 shares of common stock, for an aggregate purchase price of $50.0 million, in a private placement (“PIPE”).
Stock Repurchase Program
In November 2015, the Company’s board of directors approved a Stock Repurchase Program totaling $10 million of the Company’s publicly-traded shares of common stock. The Repurchase Program was to remain in effect for a period of one year, until November 17, 2016. During the nine months ended September 30, 2016, the Company repurchased 249,047 shares of common stock at an average market price of $5.95.
Off-Balance Sheet Arrangements
As of September 30, 2017, weMarch 31, 2019, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations other than as detailed below. We haveThe Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Contingent Consideration
In connection with the Business Combination pursuant to the Purchase Agreement and subsequently modified by the Amendment Agreement, Dow is entitled to receive future contingent consideration and other payments from the Company in relation to (i) in 2018, a deferred payment from the Company
See Note 3 to the unaudited condensed consolidated financial statements contained in this Report for further discussion of contingent consideration in connection with the Business Combination.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate risk for changes in interest rates relates primarily to our Term Loan and Revolving Loan. We have not used derivative financial instruments in our investment portfolio. The Term Loan and Revolving Loan bear interest at floating rates. For variable rate debt, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. Holding debt levels constant, a 100 basis point increase in the effective interest rates would have increased the Company’s interest expense by $3.1 million for the nine months ended September 30, 2017.
Foreign Currency Risk
A portion of the Company’s operations consists of manufacturing and sales activities in foreign jurisdictions. As a result,smaller reporting company, we are not required to provide the Company’s financial results could be significantly affectedinformation required by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products or services. The Company’s operating results are exposed to changes in exchange rates between the US dollar and various foreign currencies. As we expand internationally, our results of operations and cash flows will become increasingly subject to changes in foreign currency exchange rates.this Item.
We have not used forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Foreign currency risk can be quantified by estimating the change in results of operations or financial position resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would generally not have a material impact on our financial position, but could have a material impact on our results of operations. Holding other variables constant (such as interest rates and debt levels), if the U.S. dollar appreciated by 10% against the foreign currencies used by our operations in the first nine months of 2017, revenues would have decreased by approximately $8.0 million and EBITDA would have decreased by approximately $4.8 million for the nine months ended September 30, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have beenwere no changes to ourin the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter ended September 30, 2017 that has materially affected, or areis reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are named as a defendant in legal actions arising from our normal business activities. Although we cannotpredict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of operations.
ITEM 1A. RISK FACTORS
Ownership of our securities involves a high degree of risk. Holders of our securities should carefully consider, in addition to the historical financial statements and related notes and other information set forth in this Report, the risk factors discussed in Part I - Item 1A - Risk Factors included in our 20162018 Form 10-K, and the factors set forth below, all of which could materially affect our business or future results. Except with respect to the amended and restated risk factors set forth below, thereThere have been no material changes to the risk factors disclosed in our 20162018 Form 10-K. If any of the risks or uncertainties described in any of such risk factors actually occur, our business, financial condition and operating results could be adversely affected in a material way. This could cause the trading prices of our securities to decline, perhaps significantly, and you may lose part or all of your investment.
We are required to pay Dow for certain tax benefits we may claim, and these amounts are expected to be material.
Pursuant to the Tax Receivables Agreement we entered into with Dow upon the consummation
We expect that the payments that we may make under the Tax Receivables Agreement could be substantial. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding Tax Receivables Agreement payments. There may be a material negative effect on our liquidity if we do not have sufficient funds to make payments under the Tax Receivables Agreement after we have paid taxes.
Dow andBoulevard Acquisition Sponsor, LLC (the “Sponsor”)have significant influence over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
As of June 30, 2017, Dow and the Sponsor (and its affiliates) owned approximately 35% and 7%, respectively, of our outstanding common stock. In addition, each of Dow and the Sponsor currently beneficially owns a significant percentage of our outstanding warrants. Because of the degree of concentration of voting power (and the potential for such power to increase upon the purchase of additional stock or the exercise of warrants), your ability to elect members of our board of directors and influence our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends, may be diminished.
Warrants are exercisable for our common stock, which, if exercised, would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
As of December 31, 2016, outstanding warrants to purchase an aggregate of 15,983,072 shares of our common stock were exercisable in accordance with the terms of the warrant agreement governing those securities. All of these warrants will expire at 5:00 p.m., New York time, on July 31, 2020, or earlier upon redemption or liquidation. The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the holders of our common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On November 2, 2017, the Company’s BoardNone.
The foregoing description of the amendment to the Bylaws does not purport to be complete, and is qualified in its entirety by reference to the full text of the amendment to the Bylaws, a copy of which is filed as Exhibit 3.6 to this Report and incorporated in this Item by reference.
ITEM 6. EXHIBITS
| | | | | | | | |
| Exhibit No. | | Description |
| (1) | Second Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on July 31, 2015. |
| (4) | Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation. |
| (1) | Series A Certificate of Designation. |
| (2) | Amended and Restated Bylaws. |
| (3) | Amendment to the Amended and Restated Bylaws of AgroFresh Solutions, Inc., effective as of September 3, 2015. |
| (5) | Amendment to the Amended and Restated Bylaws of AgroFresh Solutions, Inc., effective as of November 2, 2017. |
| (1) | Specimen Common Stock Certificate. |
| (1) | Specimen Warrant Certificate. |
| (6) | Amendment No. 2 to the Credit Agreement dated July 31, 2015. |
| * | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended. |
| * | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended. |
| * | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | * | XBRL Instance Document |
| 101.SCH | * | XBRL Taxonomy Extension Schema Document |
| 101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| | |
| Exhibit No. | | Description |
| 3.1 | (1) | Second Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on July 31, 2015. |
| 3.2 | (4) | Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation. |
| 3.3 | (1) | Series A Certificate of Designation. |
| 3.4 | (2) | Amended and Restated Bylaws. |
| 3.5 | (3) | Amendment to the Amended and Restated Bylaws of AgroFresh Solutions, Inc., effective as of September 3, 2015. |
| 3.6 | * | Amendment to the Amended and Restated Bylaws of AgroFresh Solutions, Inc., effective as of November 2, 2017. |
| 4.1 | (1) | Specimen Common Stock Certificate. |
| 4.2 | (1) | Specimen Warrant Certificate. |
| 31.1 | * | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended. |
| 31.2 | * | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended. |
| 32.1 | * | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | * | XBRL Instance Document |
| 101.SCH | * | XBRL Taxonomy Extension Schema Document |
| 101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
———————————————————————————————
| |
(1) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on August 6, 2015. |
| |
(2) | Incorporated by reference to Annex A to the Company’s definitive proxy statement (File No. 001-36197) filed with the Securities and Exchange Commission on July 16, 2015. |
| |
(3) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on September 10, 2015. |
| |
(4) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on June 7, 2017. |
*Filed herewith.
(1)Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on August 6, 2015.
(2)Incorporated by reference to Annex A to the Company’s definitive proxy statement (File No. 001-36197) filed with the Securities and Exchange Commission on July 16, 2015.
(3)Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on September 10, 2015.
(4) Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on June 7, 2017.
(5) Incorporated by reference to an exhibit to the Quarterly Report on Form 10-Q of the Company filed with the Securities and Exchange Commission on November 9, 2017.
(6) Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on February1, 2019.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| AgroFresh Solutions, Inc. | |
| Date: | May 7, 2019 |
| | |
| AgroFresh Solutions, Inc. |
| Date: | November 9, 2017 |
| | |
| /s/ Jordi Ferre | |
| By: | Jordi Ferre |
| Title: | Chief Executive Officer |
| | |
| /s/ Katherine Harper |
| By: | Katherine Harper |
| Title: | Chief Financial Officer |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
EXHIBIT INDEX
|
| | |
| Exhibit No. | | Description |
| 3.1 | (1) | |
| 3.2 | (4) | |
| 3.3 | (1) | |
| 3.4 | (2) | |
| 3.5 | (3) | |
| 3.6 | * | |
| 4.1 | (1) | |
| 4.2 | (1) | |
| 31.1 | * | |
| 31.2 | * | |
| 32.1 | * | |
| 101.INS | * | XBRL Instance Document |
| 101.SCH | * | XBRL Taxonomy Extension Schema Document |
| 101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | * | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | * | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document |
———————————————————————————————
| /s/ Graham Miao | |
(1) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on August 6, 2015.By: | Graham Miao |
| |
(2)Title: | Incorporated by reference to Annex A to the Company’s definitive proxy statement (File No. 001-36197) filed with the Securities and Exchange Commission on July 16, 2015.Chief Financial Officer |
| |
(3) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on September 10, 2015. |
| |
(4) | Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on June 7, 2017. |