AgroFresh Solutions Annual Report 2019

Plain-text annual report

Rooted in Trust 2019 Annual Report O V E R V I E W Delivering conﬁ dence in seasons of change. We are the technical experts. The trusted partners. The steadfast protectors of the world’s fresh produce. With over 20 years of proof, AgroFresh has built a reputation as a global leader in near- and post-harvest solutions. We are the original innovators and continue to be at the forefront of produce freshness, protecting crops throughout the supply chain and playing an active role in the effort to reduce food loss around the world. But our legacy is more than our innovative product line and sustainability initiatives. It’s our dedication to high-touch service, helping tailor solutions to the specific needs of growers, packers and retailers. Customers trust us – the technical knowledge of our teams, the quality of our products, and the customized way we handle every issue. In 2019, we showed our customers that difficult environments bring out our best – with harvest delays and severe weather serving to fortify our relationships. Their confidence in AgroFresh is what returned us to growth in the United States Pacific Northwest market this year and is, undoubtedly, the foundation of our resiliency in the face of adversity. 4K 25K customers worldwide fruit storage rooms protected by AgroFresh solutions 500 patents and growing 2 S E R V I C E - O R I E N T E D P L A T F O R M Upholding our core. In 2019, we reinforced what makes us customer-centric. Our sales and technical experts served as valuable partners to our customers and an extension of their teams. We provided intimate counsel throughout the year, when times were tough, gaining a deep understanding of customers’ needs and how to address them in the ever-evolving market. Customers continued to receive one-on-one problem-solving consultation and diagnostics for the variety of issues that arose – from early frosts jeopardizing yields to leaky storage rooms impairing efficiency, to producers attempting to maximize returns in difficult conditions. Our holistic approach makes us customers’ first and primary contact in the industry. 4 D I R E C T S A L E S M O D E L Quality without compromise. A unique aspect of AgroFresh is our significant investment in our own proprietary products and technology solutions. In 2019, this helped strengthen our relationships with customers by improving the quality of their fresh produce. Our commitment to bringing quality solutions to market is evident in our registered product portfolio. In 2019 we continued to invest the considerable time and resources required to expand our product registrations in different crop varieties as well as key geographies – including Brazil, Italy, Spain, France, Ecuador, Argentina and Greece. Expanded registrations, such as our approval for Harvista™ in Australia, were key drivers of growth. Science-Backed Innovation We pride ourselves on the scientific data and industry know-how behind every solution we bring to market, which is based on deep engagement and real-time issue resolution with our customers. With each season, our crop-specific knowledge continues to grow and directly benefit customers. This unmatched level of technical expertise is what reassures our customers year after year. Through the host of challenges growers faced in 2019, our global infrastructure, suite of products and delivery systems, scientific expertise and predictive algorithms emerged as strong competitive advantages. 50 countries with active product registrations $ 14.1M spent on R&D across our global development centers 6 S U S T A I N A B I L I T Y I N I T I A T I V E S Preparing produce for a fresher future. This year, we lived up to our vision of becoming the guardians of the world’s fresh produce. Preserve freshness. Reduce waste. Conserve resources. 8 S U S T A I N A B I L I T Y I N I T I A T I V E S The Problem: A Lack of Post-harvest Tools. 45% of fruits and vegetables go to waste every year 1/3 of all food produced for human consumption goes to waste every year In the past, growers and packers were ill-equipped to fight environmental factors that wreaked havoc on their harvests. They lacked the means of keeping produce from decaying as soon as it left the fields. This led to high levels of food waste with critical implications for both the economic and environmental health of the planet. While progress has been made, the battle goes on today. Our Solution: Greater Yields. Less Loss. ESTIMATED 10K metric tons of global produce is saved by our products each day At AgroFresh, we embrace sustainability as both an ethos and a global business. Through investments in innovation, we strive to give customers better control over their yield, maximizing freshness and value for their crops at every stage in the supply chain. Our efforts have successfully saved thousands of tons of produce from spoilage or rejection by end-customers. Since our founding, our impact has extended from apples to other crop varieties around the globe. 10M = 2M tonnes of CO2 emissions were eliminated* cars taken off the road for a year 259K = tonnes of apple waste was diverted* 2.5M tonnes of water Fights food waste by extending the freshness window of produce. Our near-harvest technology for controlling ethylene response optimizes harvest management, enhances fruit quality and helps generate higher yields. A data-driven suite of analytical tools for optimizing fruit quality, maximizing packouts and minimizing food waste. *Influence on the apple industry from 2002-2018 in the US, France and Italy 10 C E O & F I N A N C I A L S Dear Shareholders, 2019 was a dynamic year for our core customers, particularly those in European and eastern North American markets, who faced a series of disruptions to normal season patterns that impacted their apple and pear production. AgroFresh is a customer-centric organization that participates as a valuable partner, providing not only ethylene managing solutions, but also sound counsel based on decades of scientific post-harvest expertise to help maximize the returns for their businesses. In 2019, customers have continued to trust AgroFresh to deliver guidance on specific technical applications by apple variety. Together, we have overcome changes in season patterns, and we are humbled by their shared commitment with us. We are pleased with 2019’s financial performance in spite of the industry challenges, as we delivered 160 basis points of adjusted EBITDA margin expansion in 2019, despite revenue declining 3% on a constant currency basis, which is a result of the hard work we’ve done to optimize our cost structure. The resiliency of our business in difficult environments comes from our global geographic reach, extensive registration portfolio and strong service-oriented platform. In this vein, we saw positive trends in our SmartFresh business in key markets in the face of increased competition, including market share growth and stabilized gross margins, which speaks to the value of AgroFresh’s brand reputation and unmatched service. We continue to diversify sales of products such as Harvista™ into new crops and geographies, and grow existing platforms, such as Tecnidex in citrus. Innovation remains an important element of our culture and we are encouraged by the planned future introduction of some novel technologies that we believe will support our long-term diversification efforts. We are confident that the new strategic foundation that we’ve put in place will start generating incremental SmartFresh sales through our broadened diversification strategy in 2020. We are energized by the response from customers in these challenging times. More than ever, customers are looking to trusted partners to help find solutions to preserve the quality of their fresh produce along the supply chain. We have proactively deployed resources to support upcoming crop seasons and demonstrate our unwavering commitment to their success. Essentially, we are always there when customers need us. We are confident that our innovation pipeline, scientific and regulatory expertise, global service infrastructure, and the execution of our diversification strategy will allow us to deliver sustainable growth for years to come. Jordi Ferre Chief Executive Officer Trimming costs. Growing margins. Financial Highlights Supported by our service platform, asset light business model and operating efficiencies, we achieved strong margins in 2019. Refocusing the business on these strengths allowed us to rise above competition and weather disruptions around the world. Our strategy to create greater efficiency and optimize our cost base reduced general and administrative expenses by nearly 10% from the previous year. This helped drive a 160 basis point increase in adjusted EBITDA margin*. SmartFresh™ re-emerged as one of our primary revenue drivers, successfully recapturing share in the key North American market. Harvista™ sales continued their growth trajectory, generating an 11% increase for the year. FreshCloud™ is beginning to be utilized in new ways and in new markets, contributing to overall growth. + $17.1M Increase in FY19 Operating Cash Flow $20 Million of Operating Cash Flow (FY19) 39% Adjusted EBITDA Margin (FY19) +160 Basis Point Increase (vs. FY18) 9.6% Reduction in FY19 SG&A Expenses $59.4 Million of SG&A Expenses (FY19) 12 F U T U R E O U T L O O K Cultivating sources of diversiﬁ cation. We are committed to diversification in people, technologies, geographies, and solutions. Our team operates with a mandate to accelerate our initiatives to diversify beyond apples and expand our addressable market. Key in this strategy is the expansion of our regulatory portfolio and the development of novel solutions for unique supply chain challenges across differing crop types. We expect that while continuing to earn the confidence of our customers, our efforts We expect that while continuing to earn the confidence of our customers, our efforts will drive organic growth and open unique opportunities across our global footprint. will drive organic growth and open unique opportunities across our global footprint. (This page has been left blank intentionally.) NON-GAAP FINANCIAL INFORMATION This report contains the non-GAAP financial measures Adjusted EBITDA and Adjusted EBITDA Margin. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance, including incentive bonuses and for bank covenant reporting. Management believes that these measures enhances a reader's understanding of the operating and financial performance of the Company and facilitate a better comparison between fiscal periods. EBITDA excludes income taxes, interest expense and depreciation and amortization, whereas Adjusted EBITDA further excludes items that are non-cash, infrequent, or non-recurring, such as share-based compensation, severance, litigation and M&A related costs, to provide further meaningful information for evaluation of the Company’s performance. The Company does not intend for the non-GAAP financial measures contained in this report to be a substitute for any GAAP financial information. Readers of this report should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. A reconciliation of Adjusted EBITDA to the most comparable GAAP measure is provided below. GAAP TO NON-GAAP RECONCILIATIONS The following table sets forth reconciliations of the non-GAAP financial measures EBITDA and Adjusted EBITDA to the most closely comparable GAAP financial measure, net income (loss). YEAR ENDED DEC 31, 2019 $(61,510) (17,143) 33,784 83,456 $38,587 2,714 1,086 8,745 4,127 (330) 11,424 $66,353 GAAP net income (loss) including non-controlling interests Provision (beneﬁ t) for income taxes Interest expense1 Depreciation and amortization Non-GAAP EBITDA Share-based compensation Severance related costs2 Other non-recurring costs3 Loss on foreign currency exchange4 Mark-to-market adjustments, net5 Impairment of assets6 Non-GAAP Adjusted EBITDA 1 Interest on the term loan, inclusive of accretion for debt discounts, debt issuance costs and contingent consideration. 2 Severance costs related to ongoing cost optimization initiatives. 3 Costs related to certain professional and other non-recurring fees, including those associated with becoming a stand-alone public company, litigation, and M&A related fees. 4 Loss (gain) on foreign currency exchange relates to net losses and gains resulting from transactions denominated in a currency other than the entity’s functional currency. 5 Non-cash adjustment to the fair value of contingent consideration. 6 Impairment of assets related to software and investments. SAFE HARBOR In addition to historical information, this report contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Please see “Cautionary Note Regarding Forward-Looking Statements” contained in our Form 10-K for more information. TM Trademark of AgroFresh HEADQUARTERS 510-530 Walnut Street, Suite 1350 Philadelphia, PA 19106 NOTICE: AgroFresh makes no representations or warranties as to the completeness or accuracy of any information contained herein (“Information”). Recipients must make their own determination as to its suitability for their purposes prior to use, and nothing contained herein is to be construed as a recommendation to use any product, process, equipment or formulation in conﬂict with any patent. AGROFRESH MAKES NO WARRANTIES OF ANY NATURE, EXPRESS OR IMPLIED, WHETHER REGARDING MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR ANY OTHER MATTER, ALL OF WHICH ARE EXPRESSLY EXCLUDED. ™Trademark of AgroFresh Inc. © 2019 AgroFresh Solutions, Inc. All rights reserved. 002.01.AGFS.19

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