AGFS - Earnings call transcript Q3 2019

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Operator

Good afternoon, and welcome to the AgroFresh Solutions Third Quarter 2019 Conference Call. [Operator Instructions]

At this time, I would like to turn the conference call over to Jeff Sonek, Investor Relations at ICR. Sir, please go ahead.

Jeff Sonnek

Thank you, and good afternoon. led Chief Ferre, Financial be and Executive will Miao, Graham Officer. presentation by Chief Jordi Officer; Today's

to Comments during harbor are today's XXXX. fact and forward-looking of forward-looking Private statements are differ expectations call Litigation discussed All and the the Securities statements. statements current actual of beliefs accompanying and subject assumptions statements statements. future management's as statements meaning cause number the considered as other in and on a the of materially risks Act forward-looking based Such safe concerning Reform provisions than events. are the within of could of results uncertainties presentation known unknown well historical forward-looking from contain that the to statements These results

the their are included risks measures. release, can of and comparable that agrofresh.com, the this presentation filings of to these the financial Relations press website company's We'll uncertainties tables the measures. which financial accompany GAAP certain non-GAAP on directly of the as in in to be measures and with the to discussed SEC. for non-GAAP refer our slides refer identified reconciliations Please section Investor most Some as well found

I'd Ferre. like over that, the to turn call With now to Jordi

Jordi Ferre

Please Thank everyone. Jeff, you, and X. good turn Slide to afternoon,

faced apple difficult to extends we year, are our exacerbated by both Third in and which quarter. the results XXXX comparison an the were through season. the the and earlier-than-normal a harvest harvest to prior season, quarter States not Hemisphere fourth delayed results season representative quarter of for our a start the where Northern expectations third Europe, The United saw

become caused revenue September this year the business. of an our year, anomaly sales to the in October from shift is which largest The for month October to

Nonetheless, constant business and initiatives SmartFresh currency in the core achieved challenged as Harvista growth are was delays, Tecnidex diversification geared anticipate that quarter the this and year-to-date our due XXXX. shifts products period, quarter of year XX% comparison business. the timing such period, to will all to Significant temporarily compared carry we unforeseen the in timing reality to growth our the in the sales towards third an While season momentum decreased is third in harvest net ongoing in variability of our the through prior early harvest XXXX. end reflecting

Harvest year, as In normal that this recall, the from because of North on fact, delayed you than Hemisphere it second magnitude The Europe. Hemisphere delay which first we the experienced Southern this greater our and shifted sales earnings the quarter was may impacted harvest, to both a quarter. Northern year's noted America

XXXX results, stable We low single-digit are impact. believe sales year, our to encouraged excluding percentage by prior be foreign our full that currency down year in net we the October the and versus will

initiatives positive the controllable allow margin full achieve that expect versus us optimize in our operating costs. the ongoing do of year on we efforts are succeeding cost adjusted EBITDA improvement business to our an However, will XXXX. for of and remain to our impact focused We in aspects XXXX our

we completion verdict quarter, forward company, we end, To parent reduction expenses with pleased see MirTech Inc. permanently. this forward previous moving UPL of the are expect of resolving in As matter look jury's with the October. Decco Decco that Limited, we the to in the mentioned of half litigation favorable to and Post-Harvest, a first the nonrecurring against and

Considering our a a September quarterly a of Furthermore, in Hemisphere typical quarter harvest on short place XX X. of month difficult significant due and ultimately XX. magnitude was a quarterly basis compounded of X comparatively early as versus last the takes the year. Turning that the mid-October, the delay the weeks XX reporting September to measured SmartFresh was as the Slide sales in month, of by of in largest They revenue our shift year. days of to experienced impact change harvest. last Northern most to year's

delay. grow is a significantly the in in events, Partially States offsetting winds last including apple apple brought harvest largely the was America by this delay high Canada, in and Northwest which the hail to driven were the Pacific extreme North and by versus about our eastern the Despite Hurricane frost still United States, growth late year. by regions business October, weather impacted the Dorian. growing and challenges expected are the United crop by impacted in in is which some

Italy crop other harvest, in be impacted Italy conditions fourth the Our lower in which weather SmartFresh versus the smaller Europe, such business a apple is as Europe is and were revenue year. into North negatively crop also ongoing in appears The to France, smaller U.K. later-than-averaged and Netherlands quarter. were of crop as prior larger in and harvest In the prior to well. European including apple Western comparatively and Spain, shifting variety the a America, versus experiencing pear is the by sizes is weather-driven facing Similar year. Partially the were Europe apple the headwinds Italian markets in variables, offsetting Portugal. the

and X. to crop progress towards is we goal. continue our central our a business to Slide product operating Turning Diversifying broader core this to and to base strategy, make

revenue apple of the in prior period. trailing total XX.X% measured the was ended compared XX September as months to our XXXX, trailing mix a X.X% year XX months percentage For

regulatory business continually And portfolio new leveraging such address growing our as the to mangoes primary beyond and we new bananas. for expanding driver markets are crops and Our apples. expertise our is

A of in great India and metric tons the X.X new million operational is solutions. that utilization approximately Italy, to the During of is crop of produces India. the is of supply third adopting comparable apples, necessitate chain which quarter, regulatory size infrastructure atmosphere a the SmartFresh of we there recent approval controlled facilities example obtained and approvals. improving number

also tree, started Slide portfolio. to our benefits, significant process yield and and such promoting we helps the It an pears such Harvista other on have Please provides high-value crops, quality and X. firmness enhancement address to other fruit the still as with respiration cherries as ripening for blueberries, slow apples turn for registration and extended growing period. which while are

For the were the third quarter, versus delay North to harvest of the third in modestly sales down due XXXX America. Harvista quarter

the While of still for positive generated a year-to-date we deceleration global a business, the successful it on delay period XXXX. versus that anticipate growth in making year and a X.X% will a caused prior have basis fourth quarter, the Harvista

additional by being new and product, latest formulation we of new in in South Southern Building new as to which approval year's States have previously, we future established Australia for the Argentina. mentioned Hemisphere success, United season. easier And to will X Africa, drove markets, and be recently apply. next this for growth effective of in more gained The Harvista the our revenue approvals driven this producers year. additional the of allowing formulation and regulatory Harvista opportunities Chile for approvals upon timing continue growth used during is already is

in where and product really Looking European are of the a lot generated promising customer New Union, Zealand, Brazil targeting ahead, trials. has we approvals interest the regulatory after some

United and are example are of Chile States as the approval next great diversification goes Harvista helps and this, midst pears strategy other implementation and cherries in drive our beyond of strategy. season. the in technology beyond the a for crops we United in regulatory pursuing for Driving of to blueberries regional States apples such and high-value the exposure also year's the in blueberries Our

currency growth increased approximately Turning be estimate via of by Latin Slide quarter. crop business, opportunity and and Tecnidex believe significant the which European of XX% driven that for presence, market waxes. X. diversification X.X% fungicides, of constant centerpiece represents and a to emerging temporary is by we with citrus On first providing established recovered partially portfolio citrus and American Middle our softness We the some Africa partially of during the AgroFresh basis, across in AgroFresh. balance in global the technology market our a East, strength XXXX, Tecnidex and total the X offset postharvest of an will coatings sales fourth months core a remains

fungicides global of and global customer global Tecnidex a basis provides a Our of support to year's base. solution. crops significant portfolio some an this citrus service-oriented is expand diverse of commitment of our customer with Tecnidex us opportunity expand and a set approach to on meet for for broader expanded secured exciting an our season. utilize business recently needs to variety To solutions we'll solutions our for sourcing Their with our we key next suppliers end, that development to

significant Additionally, citrus global some in we we a don't where degreening presence. have market, equipment our also which started to currently a California, is have customer at test facilities

Please to X. Slide turn

of yellow with move estimated RipeLock's We forward life relaunch extra an that the have retailers. protocol X new delivers simplified continued minimum of banana days of to to

on the of retailers to ways looking to the store. enhance fresh, offerings responding are for who We ready-to-eat the are perimeter

in into with Beyond leveraging commercial address retail for such Peru Brazil, engaging as packers and are other the to melons we to we chain export strategically display, Asia. and deeper have Europe Mexico crops supply Chile, exporters, and mangoes store avocados, the the and infrastructure

producers Europe rollout RipeLock retail major and testing and We trials the making be key chains. are expect Consequently, in-transit year. are States that month engaged respective avocado our this the the of expect in engine with supply banana growth in for that United a will with coming be to partners for also progress completed soon. confirmation solutions their We're we

produce by making platform with freshness that educated inventory FreshCloud. provides Last insights projected growth trajectory our and driven shelf positive, the X. its digital return United supply Chile, infancy, Slide growth model. and year-to-date helps life. to our and insightful, their The mainly better by States real-time remains solution turn in Please the customers launched maximize our more of produce Despite fresh chain year, along decisions. storage This data digital we

technical and our by fresh customer the as build provide produce platform industry information well improving to global collected base. adding actionable across We delivery and and our continue out valuable its to as link to insights capabilities the

let some of financial the I'll speak now Graham? highlights. Graham to

Graham Miao

afternoon Slide and call. Jordi, on the good Thank to XX. to turn everyone you, Please a

harvest The example third of why the a we shift the versus with quarters. Northern the account season. Hemisphere fluctuations that sales into is business should third in our quarter half to seasonal that take experience between marks our fourth the delay consider of the And and can quarters investors emphasize great beginning

impact the third were quarter to exchange, quarter of foreign Revenue compared the of of Net in third a as of decreased which year net million. XX% period changes sales currency million $XX revenue $X.X to XXXX. the reduced in in the approximately decrease by of XXXX, compared excluding $XX.X million prior XX% the sales

of a XX% currency months foreign million, X net first $XXX.X excluding the sales or For XX% impact. were XXXX, decrease of

a apple increased crop initiatives, all in Latin increased around achieved From size for Tecnidex, due America focused year-to-date Argentina period. growth which penetration to are growth and the standpoint, in Our growth regional and the Harvista Brazil. FreshCloud realized

on impact across negative these enough were the However, the third Hemisphere. due Northern positives not quarter delay in results the timing the harvest counterbalance to to

Please where turn to operating Slide expenses. XX, margins and we'll discuss

Our of was third in versus XX.X% gross XXXX third the consistent quarter with XXXX. XX.X% margin at expectation the of quarter in

quarter impacted year normal delay. higher-margin our compared Third results period. margin affected was ago heavily SmartFresh in more first by the gross with These the trends to This anomaly months sales toward harvest influenced profit of season X mix, year, business. same margin is which at the this weighted year in similarly XX.X% the the XX.X%

an sales model. postharvest While for our gross platform by supported solutions-based R&D based upon diversifying and continue and our to infrastructure, in is margin profile to mix, operating service to invest This allows advantageous gross us evolve our margin our industry-leading which continuous allows asset-light innovations. our

From optimization business and our focus greater an better structure for perspective, our efficiency we our with expense continue create revenue operating align cost on to base. to

During initiatives of these we upon XXXX, and the to we benefits we realize began XXXX, for savings to remainder quarter the built at of of continue XXXX. generate to expect end the third the

the quarter decreased in administrative $XX $X.X nonrecurring in such SG&A the $X.X prior selling, quarter severance. to reported Third as million on included and XX.X% a current costs, a of the expenses basis. and M&A, litigation period general expenses million million and

the X.X% these over same last of third in quarter SG&A the year. XXXX Excluding decreased period items,

by of decrease For SG&A severance to the a in optimization $X.X of and costs, a initiatives. million X.X% in months, cost nonrecurring were down million when litigation and driven $XX such excluding current million X.X% year M&A, as year, the X expenses and the ongoing $X.X prior

$X.X quarter XXXX. and driven the the decreased by Research in decrease expenses primarily to The the projects. million development of year timing prior third versus of was $X.X million

to million For the research first continued to apples. of X $X.X development $X.X an the R&D period. XXXX, important of and months remains component decreased our prior versus million strategy diversification expenses year beyond drive

Year-to-date, positive $XX.X projecting will delay mentioned, XXXX of EBITDA improved adjusted Despite $XX.X are deliver million an margin adjusted harvest year full million EBITDA the in basis, that Jordi was quarter third cost the sales, our versus the we of due in driven XX. prior $XX.X as versus full net and net million of of net turn quarter to year to of $XX.X we ongoing income impact able in the or compared a million ago the was XX.X% for compared in year by year-to-date our the Net was prior million On $XX.X the Please $X.X XXXX, improvement factors to that cost a structure. by to offset quarter Slide quarter be $XX.X decrease third the income year million additional loss million, the $X.X the in million versus was EBITDA third initiatives. to loss period. XXXX in period. a Adjusted lower partially period. third

flows Turn period to driven in XXXX compared improvement use better million of by was year-to-date with compared the in million million a to used for operations Cash The the ago XXXX cash million prior year-over-year year working expense of operating primarily $X.X were XX. $X.X million $XX.X emphasis on was and $X.X capital collections year Slide the an control. to management, year-to-date in period. $X.X for expenditures period. Capital by period particularly the

term Total million, maturity range $XX.X annual balance X% X% $XXX.X as from expenditures in September expect a loan to perspective, with XXXX. was our consistent model. was July We asset-light From of XXXX, capital cash business sales, our of with sheet a million. XX, debt to

Our revolver XX, total liquidity liquidity September was as our $XX.X -- undrawn of and was million. XXXX,

will cost focus growth we ahead, optimizing to base. continue and Looking on delivering our

sheet, In particularly addition, we are capital working the diligently structure. balance to our improve

loan we maturity in through working strong alternatives. before actively very are that global current of this issue possible our will its I'm process evaluating in confident July position, in solve We XXXX. X July becomes term our With year a business all XXXX, our before

the turn the will opening Jordi I for call before Now, call closing remarks to to Q&A. his back

Jordi Ferre

Please you, Thank Slide to turn Graham. XX.

our despite results encouraged resilience and initiatives of diversification into regions We the the quarter to with in portfolio core are growing by delay expand are postharvest third the harvest with pleased of business the solution. of new our and crops our unexpected

to Our with the meet to service-oriented global us changing competitive our needs of customers react approach the and proximity industry. a provide to advantage quickly

options enhance stated, to to Finally, as reduce flexibility initiatives. continue to and Graham drive we on focus our our leverage strategic

please operator, for the call With open that, questions.

Operator

first Instructions] ROTH comes Gerry [Operator Our from question with Sweeney Capital.

Gerard Sweeney

Do same I the larger was the under in other is U.S., was is in I Overall, think year? obviously, the as as, impression any and Hemisphere market U.S., only apple versus last the Pacific last countries Northern Northwest, to be puts smaller are some I but not this than guess, takes, which largest that? But the there i.e. on going Europe. the year or the crop the you larger, data have well year.

Jordi Ferre

Gerry, yourself, consumption? referring you Are to

Gerard Sweeney

size. harvest the to referring just actual No, I'm

Jordi Ferre

Okay.

being we're having we United larger Europe. In yes, Northwest side you're in on of call, year. is been the Gerry, delay of So We thing we predicted the the most is our impacting Pacific seen to view. continues I weather And the in States, as the generally Europe, and crop October be be said forecast than to potentially you right. last a we've in downward east prudent that The mentioned, think, apple which So last right? into heard in Northwest and unusual, bigger. Pacific Western the business -- harvest QX, crop. speaking impacting -- be is said that is The it's in that unforeseen will the that, so because

about, as at that The was to will all be it but to east. probably not I but so before, very difficult to looking ends, expect looking good, but look east, the wrapped the said as could we said, to would I the is yet that the but venture in business it the there. it's really is doing had us some as say, be we I better are numbers, going crops up Italy material other Europe, the Western not on season equal. to that when be be have down, Western side it's Western season be until, is We Europe. seen would up, Yes, and

Gerard Sweeney

to this today? comfortable whole and the mean market percentage was question your share this mean flat. a flat Are the So, higher, several I Pacific Northwest question If several to going but next equal it you holding or was predicated I the -- -- net-net-net, -- points. your you harvest was on is down we'll are just few and revenue by being with was that net basis maybe be say

Jordi Ferre

Yes. are. are. Yes, we Yes, we

going In in extra the end here, of are gains fact, potentially share. we some where to season over as in the be -- the not I and fourth said, quarter cautious is until I'm we even the U.S. see

regaining of done we better we end season So I year. that think the the lost And potentially. is completely update the at we're could share when of the some again,

Gerard Sweeney

you're if flat pricing? at So, drive potentially share gain, down? revenue even Is what it market would to looking

Jordi Ferre

We change don't really see pricing. any material in

to weather get a is you into the might I I here. bit to tell an little So trying with you there's sometimes season, because as think with right, trees example. on is that Gerry, a of you see there's sure you -- as weather want out cetera, Once today cold you, produce of the event. make that unpredictability to normal, be this but is little give -- give the et we no when see, and in a delay lot there's to you we're why, bit cetera, outlook you, right? a weather, I'll cautious we it's et Because frank be

we some outlook a the give the to cautious facing. EBITDA said this completely being more cost initiatives. that upbeat our on on is, we of other make on we the very, But that try we as based unpredictability can we're we that's based And very hand, that Not here. I -- So are predictable. you why areas see of before, our control we an improvement said adjusted in business that to

Gerard Sweeney

And that's of it. drivers that Got are your get No, fair. control. [indiscernible] I outside

sure you're share pricing. market just So and want to with I make comfortable

So that's...

Jordi Ferre

are. We

better able that don't will materiality during say we point But at otherwise. We out, have call. done, seen the if was are. do we but to this a pointing it would we see is have be anything We worth in again, would when any season time, this we balance, mentioned

Gerard Sweeney

I it by mean is degradation you already? going to mean you're I to it, say if fair have are any this pricing it? we is November, I right? time would are -- seen seen see you haven't mean So not chances it

Jordi Ferre

Certainly.

seen haven't We our that [indiscernible]. in

Gerard Sweeney

memory don't talk and reason. Decco for out any just question you during Decco was from been believe market at the trial, I a that the the But product -- enjoined off I can much MCP documents. a of legal going one and lot and least I that bit think this they've reading about of of and little UPL. is one selling had

lot there. trial entering know end form phases, I a its to or issues, to market any able enter but the there's shape, With there's of are moving going patent parts in be they the fashion?

in you a and little context So the are can curious they around what I'm happens bit Decco this post of trial of ramp-up -- market. give if

Jordi Ferre

what do very to will for we Decco. defend and have IP. do. to we're to want though, very They going want clear, they We to to our I be going are always speak fiercely decide can't really What

money we lot has put Graham mentioned, of As R&D. in a

That's tell respond other it to following not enforce developments. that strong people of lot anybody we all can is that see do, rules, a Whatever we cannot a And for. going I have you. We the are very in manner. will we really

Gerard Sweeney

it, Graham. that's is This for, bit little a Got more fair. question I think,

well? some was, assuming think, as around lot that into side. into was or the What quarter, you any I I'm of fourth was million significant not the that a million about could because driver as be costs. not that just Could in said, year? SG&A, $XX So SG&A you a and run but insight quarter into next $X.X is a extraneous rate, legal good give normalized there really

Graham Miao

Yes.

will can the if due year-to-date spot, our do So even quarters SG&A, look so marketing, rate to that. the at and we including operating R&D you total believe selling, better that run an good give you to far, than annualization X a for we costs,

other so down exclude was even we words you year-to-date, -- excluding nonrecurring for the basis decline nonrecurring percentage, So we X%. than then if far, in year-over-year we a take -- right? the costs, that if said reported the excluding you we cost item, will exclude greater if -- including decline So be and before the before X that as -- the

will probably So for that proxy good year. give you next a the

Gerard Sweeney

check Okay. press follow-up our to And it, improve efforts okay? line I'll you after that, a have math costs. says, to the structure." run actually, question. First the comment in had the then the final optimize I release, that and In operating to or capital get costs that's optimizing "succeeding operating

call about talking or about there Anything optionality the that's on bit the to it that debt moving You in discuss you and a amend road, front? facility? did a structure. extend an on on talk going Is new Any can down detail whole more to maybe as capital banks? or little

Graham Miao

at question, Gerry. looking -- the we're thank for you Yes,

on driving organic our obviously is of addition this top So to business in agenda growth.

improvement, impact, we're -- that delay, of looking clearly, be And internal And we're frank, operational at revenue capital, our -- as be cash improving the it a options. collection, optimization cost matter structure. continues cash strong, cash our year-over-year, through working see, our flow to a the flow seasonal top we stable. of fact, we our at as these looking have So you all fact line are to despite

to our So our is strong. debt service ability

overall so amend looking a in looking term so we but to So other to debt have our alternatives capital -- new we're a be refinance, refinance that to not can to structure levels. also at position the to or at deleverage is how extend we're loan, extend what and look only or

-- mentioned now. the aspects. on of right ongoing at we process So we we're call, an all it's And looking as these

Jordi Ferre

be What you mind. shareholders can Gerry, in best our that of interest have is we sure, always the

continue, it's right So a decision we it and that make that considering. on will we

Operator

[Operator Ben Instructions] comes Securities. National question Our next with Klieve from

Benjamin Klieve

one bumper of like of this a for kind Just Gerry's of the year, one in the this the while, was was a be weak that quick year, that from I and Jordi, the looked last it you potentially going really crop. questions Northwest, a summer, said harvest think year to follow-up you loud going size improvement likely correctly. heard particularly you year. especially regarding Pacific it's to Last be an clear from if I recall

-- you in any going that seeing not question Pacific that my kind to of that relative of par year, for of kind Northwest improvement So would is we're guessing 'XX, the Is kind it's statement? a harvest to and last I'm with fair XXXX, in on the 'XX. that be modest be

Jordi Ferre

to I'm not speculate going at this time.

other things because -- are little right? to to do We crop taken size apples a things. consider definitely bit you affect delay our over. see business, all store in if answer difficult and it's that of us. Then I makes positive the crop, the until have obviously, there It's to is the -- the Again, think a potentially, at [ph] that it you are have to going this other for is time to be the little prudent point you

X it way to terms of that looks to to of least in yes, it's the average want So the go it level, a at years. if put like going normal you

that would is be those time, in to are this season make many delay it I the until season is bit little process, actually when But why have point to it the the right? to done terms prudent in good. of of in looks that's storage, prefer at we to a And we done. However, response how

Graham Miao

I last a that to a last quarter. year, as was add Ben, strong third particularly want quarter reminder, year

Jordi Ferre

correct. That's

Benjamin Klieve

Right.

the you of regards potential legal uncertainty kind of of understanding Okay, an best may estimates But can your with any a questions. know here. to collect those update of the kind of you appeals? before other I still proceeds? the your actually And a lot really provide kind of couple settlement, there's status to as timing One, of when of

Jordi Ferre

to It's can internally, closure we estimations is able make only sure not of it's as I'll to again, I'm thing materially to way a this putting on able own expectations understand, The in possible, have right? and terms little that are best not that We're an excellent very but legal we're in And position they'll we've team. bit collect that. going in made early. way having share what You say that speak publicly this. be are as publicly. And or our a confident soon this will one But not to doing now right I'm of resolve another. we to we the any very, a we

Benjamin Klieve

payments that into making of kind the for tax Right, next the the you're then also fair and year are enough. Dow? to side, receivable And noncore on what your for expectations this year balance of

Graham Miao

are reminder, income. of a function a receivables and a U.S. our function U.S. tax So taxable our as is of entity

in acquisition huge you as we amortization have a P&L, X U.S., the when look at the amortization. disclosed years ago, the intangible So our of part

from we year, year. this last carryover for So have

a in paid year. function million had year, is we typically, we TRA, carryover how last $X of then And of a It's the $X income the $X million a it's estimate this TRA, calculated. taxable million. ongoing and we million, So about for $X --

Benjamin Klieve

last from me. And perfect. one Okay,

really you're the of FreshCloud what a are we Kind that can looking the what of of that you show kind Just for your -- are bit FreshCloud Kind continued really what next can the the product? of year elaborate kind outlook kind maybe metrics at? wondering -- of provide some through kind posts are of of XXXX? for if on target advancement

Jordi Ferre

this trend year although that, mentioned increases in already more our seeing more into have we we that So is of penetration storage to are this -- especially a gain the percentage that's advanced. go to from we the expect lot wise. year, And base I insights, small mean and module terms next a

let many journey So for you is for This this go. in but see going starting. growth We're we're also It's the year, have need. we very very area. We'll said that to And next to next year. and this a we're times also to bullish, a we growing. thing continue is growth invest. a industry. We're strategic continue see And company not should

Operator

Ladies like I'm the questions. question-and-answer session the to any and remarks. gentlemen, end call this no closing back for further conference showing time, at turn over to and Jordi I'd

Jordi Ferre

for here sure ask everybody to just would we -- call for support I everybody to we company, make like continuous and interest and you. to your continue thank Thank and this the attending deliver. work that

Operator

you attending. conference today's thank call. We concludes for This

may now disconnect You your lines.

AgroFresh Solutions (AGFS) 10 Nov 192019 Q3 Earnings call transcript