AgroFresh Solutions Reports Results for Third Quarter and First Nine Months of 2019

AgroFresh Solutions, Inc. ("AgroFresh" or the "Company") (Nasdaq: AGFS), a global leader in produce freshness solutions, today announced its financial results for the third quarter and nine months ended September 30, 2019.

Jordi Ferre, Chief Executive Officer commented, “This season we were met with a delayed apple harvest in both the United States and Europe, making it difficult to compare our third quarter results to the prior year period, where we experienced an early harvest. Third quarter results are not representative of our expectations for the 2019 northern hemisphere season, which extends through the fourth quarter. The shift in sales from September to October caused October to become the largest revenue month of the year. We project that our full year 2019 net sales will be stable to down in the low-single digit percentage versus 2018, excluding any currency impact, and expect an improvement in our adjusted EBITDA margin for full year 2019 versus 2018.

“While the business was temporarily challenged in the third quarter due to the unforeseen delays, our diversification initiatives that are geared towards growth products such as Tecnidex, Harvista and FreshCloud all achieved constant currency growth in the year-to-date period. We remain focused on the controllable aspects of our business and are succeeding in our efforts to optimize operating costs and improve the capital structure. As we mentioned in the previous quarter, we expect to see a reduction of non-recurring expenses moving forward with the completion of the MirTech litigation on October 11, 2019. To that end, we are pleased with the jury’s favorable verdict against Decco Post-Harvest, Inc. and Decco’s parent company, UPL Limited, and look forward to resolving this matter permanently.”

Financial Highlights for the Third Quarter and First Nine Months of 2019

Net sales for the third quarter of 2019 decreased 28.7%, to $49.0 million, compared to $68.7 million in the third quarter of 2018. Excluding the impact of foreign currency exchange, which reduced revenue by $1.2 million compared to the third quarter of 2018, revenue decreased 27%. The net sales decrease was primarily the result of the delay in apple harvest timing across the northern hemisphere versus the prior year third quarter which saw an earlier and shorter harvest. Year-to-date net sales decreased 13.1% and on a constant currency basis decreased 11.2% compared to the prior year period.

Gross profit for the third quarter was $35.1 million compared to $52.0 million in the prior year period, and gross profit margin was 71.6% versus 75.7% in the prior year period. The lower gross margin was primarily a function of sales mix shift. Year-to-date gross profit margin was 71.1%, compared to 73.8% in the prior year period.

Research and development costs were $2.6 million in the third quarter of 2019, compared to $3.5 million in the prior year period. This decrease was driven primarily by timing of projects. Year-to-date research and development expenses decreased $0.6 million to $9.7 million.

Selling, general and administrative expenses decreased 17.6%, to $15.0 million in the third quarter of 2019 as compared to $18.2 million in the prior year period. Included in selling, general and administrative expenses were $1.6 million in the current quarter and $3.7 million in the prior year quarter of costs associated with non-recurring items that included M&A, litigation and severance. Excluding these items, selling general and administrative expenses decreased approximately 7.7% in the third quarter versus the prior year period, which reflects the Company's ongoing cost optimization initiatives. On a year-to-date basis, selling, general and administrative expenses decreased by 6.2% and excluding non-recurring items by 7.5% versus the prior year period.

Third quarter of 2019 net income was $3.3 million, compared to net income of $3.5 million in the prior year period. Year-to-date net loss was $31.6 million, compared to net loss of $27.9 million in the prior year period.

Adjusted EBITDA(1) was $20.6 million in the third quarter of 2019, compared to $34.6 million in the prior year period. The decrease was driven by lower sales, partially offset by improved cost structure. Year-to-date adjusted EBITDA(1) decreased by $10.8 million, or 25.4%, to $31.7 million.

As of September 30, 2019, cash and cash equivalents were $18.7 million.

Background on Favorable Patent Infringement Verdict

On October 11, 2019 AgroFresh was awarded a verdict of $31.1 million in damages by a jury in the United States District Court in Delaware in its litigation against Decco Post-Harvest, Inc. and Decco’s parent company, UPL Limited. The award is subject to any appeals that may be taken by the parties in the future. The verdict included a determination that UPL and Decco had willfully and maliciously misappropriated AgroFresh trade secrets, willfully infringed an AgroFresh patent, converted AgroFresh property, engaged in unfair competition, and interfered with AgroFresh’s contractual relationships.

In an earlier ruling in June 2017, the Delaware Court had determined that AgroFresh was the owner of the TruPick patent, which had been developed by AgroFresh’s former consultant as a part of a joint venture with Decco. In the Court’s written Opinion, the Court ruled that the relevant sections of the agreements between AgroFresh and its former consultant were “clear and unambiguous” and that under the terms of those agreements, AgroFresh’s former consultant automatically assigned to AgroFresh the TruPick patent and technology.

Conference Call

The Company will host a conference call and webcast where members of the executive management team will discuss these results with additional comments and details today, November 7, 2019 at 4:30 pm E.T. The conference call and supplemental earnings presentation will be available live over the internet through the “Events & Presentations” page of the Investor Relations section of the Company’s website at www.agrofresh.com. To participate on the live call, listeners in the United States may dial 877-407-4018 and international listeners may dial 201-689-8471.

A replay of the conference call will be archived on the Company's website and telephonic playback will be available from 7:30 pm. ET, November 7, 2019 through November 21, 2019. Listeners in the United States may dial 844-512-2921 and international listeners may dial 412-317-6671. The passcode is 13694665.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures, including EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance, including incentive bonuses and for bank covenant reporting. Management believes that these measures enhance a reader's understanding of the operating and financial performance of the Company and facilitate a better comparison between fiscal periods. EBITDA excludes income taxes, interest expense and depreciation and amortization, whereas Adjusted EBITDA further excludes items that are non-cash, infrequent, or non-recurring, such as share-based compensation, severance, litigation and M&A related costs, to provide further meaningful information for evaluation of the Company’s performance.

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

About AgroFresh

AgroFresh (Nasdaq: AGFS) is a leading global innovator and provider of science-based solutions, data-driven technologies and experience-backed services to enhance the quality and extend the shelf life of fresh produce. For more than 20 years, AgroFresh has been revolutionizing the apple industry and has launched new innovative solutions in a variety of fresh produce categories from bananas to cherries and citrus to pears. AgroFresh supports growers, packers and retailers by supplying post-harvest solutions across the industry that enhance crop values while conserving our planet’s resources and reducing global food waste.

Visit www.agrofresh.com to learn more.

™Trademark of AgroFresh Inc.

Forward-Looking Statements

In addition to historical information, this release may contain "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this release that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements and are identified with, but not limited to, words such as "anticipate", "believe", "expect", "estimate", "plan", "outlook", and "project" and other similar expressions (or the negative versions of such words or expressions). Forward-looking statements include, without limitation, information concerning the Company's possible or assumed future results of operations, including all statements regarding financial guidance, anticipated future growth, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company's management's control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks include, without limitation, the risk of increased competition, the ability of the business to grow and manage growth profitably, risks associated with acquisitions and investments, changes in applicable laws or regulations, and the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors. Additional risks and uncertainties are identified and discussed in the Company's filings with the SEC, which are available at the SEC's website at www.sec.gov.

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)

September 30,
2019

December 31,
2018

ASSETS

Current Assets:

Cash and cash equivalents

$

18,746

$

34,852

Accounts receivable, net of allowance for doubtful accounts of $2,358 and $2,336, respectively

72,074

67,942

Inventories

24,199

24,807

Other current assets

14,648

15,608

Total Current Assets

129,667

143,209

Property and equipment, net

13,643

13,289

Goodwill

6,091

6,670

Intangible assets, net

676,938

711,967

Deferred income tax assets

10,095

7,332

Other assets

22,492

16,820

TOTAL ASSETS

$

858,926

$

899,287

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

$

10,257

$

7,530

Current portion of long-term debt

4,748

6,419

Income taxes payable

4,374

4,815

Accrued expenses and other current liabilities

41,397

45,340

Total Current Liabilities

60,776

64,104

Long-term debt

398,619

400,309

Other noncurrent liabilities

40,733

32,066

Deferred income tax liabilities

17,555

30,232

Total Liabilities

517,683

526,711

Commitments and contingencies (see Note 19)

Stockholders’ Equity:

Common stock, par value $0.0001; 400,000,000 shares authorized, 51,592,959 and 51,071,573 shares issued and 50,931,578 and 50,410,192 outstanding at September 30, 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 September 30, 2019 and December 31, 2018, respectively

(3,885

)

(3,885

)

Additional paid-in capital

538,075

535,819

Accumulated deficit

(170,388

)

(138,789

)

Accumulated other comprehensive loss

(30,491

)

(28,837

)

Total AgroFresh Stockholders’ Equity

333,316

364,313

Non-controlling interest

7,927

8,263

Total Equity

341,243

372,576

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

858,926

$

899,287

AgroFresh Solutions, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended
September 30, 2019

Three Months Ended
September 30, 2018

Nine Months Ended
September 30, 2019

Nine Months Ended
September 30, 2018

Net sales

$

48,972

$

68,698

$

109,095

$

125,470

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

13,892

16,662

31,516

32,910

Gross profit

35,080

52,036

77,579

92,560

Research and development expenses

2,566

3,491

9,720

10,293

Selling, general, and administrative expenses

14,998

18,212

47,044

50,133

Amortization of intangibles

11,754

12,002

35,136

34,342

Impairment of long lived assets

992

Change in fair value of contingent consideration

(229

)

307

128

543

Operating income (loss)

5,991

18,024

(15,441

)

(2,751

)

Other (expense) income

(81

)

(189

)

(119

)

419

Gain (loss) on foreign currency exchange

54

(4,731

)

(2,884

)

472

Interest expense, net

(8,606

)

(9,132

)

(26,021

)

(26,250

)

(Loss) income before income taxes

(2,642

)

3,972

(44,465

)

(28,110

)

Income taxes (benefit) expense

(5,653

)

1,018

(12,530

)

214

Net income (loss) including non-controlling interests

$

3,011

$

2,954

$

(31,935

)

$

(28,324

)

Less: Net loss attributable to non-controlling interests

(278

)

(516

)

(336

)

(442

)

Net income (loss) attributable to AgroFresh Solutions, Inc

$

3,289

$

3,470

$

(31,599

)

$

(27,882

)

Net income (loss) per share:

Basic

$

0.06

$

0.06

$

(0.64

)

$

(0.57

)

Diluted

$

0.06

$

0.06

$

(0.64

)

$

(0.57

)

Weighted average shares outstanding:

Basic

50,227,590

49,853,181

50,138,835

49,671,648

Diluted

50,288,304

50,309,979

50,138,835

49,671,648

Non-GAAP Measures

The following table sets forth the non-GAAP financial measures of EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s performance (including incentive bonuses and for bank covenant reporting), are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.

The following is reconciliation between the non-GAAP financial measures of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure, net income (loss):

(in thousands)

Three Months Ended
September 30, 2019

Three Months Ended
September 30, 2018

Nine Months Ended
September 30, 2019

Nine Months Ended
September 30, 2018

GAAP net income (loss) including non-controlling interests

$

3,011

$

2,954

$

(31,935

)

$

(28,324

)

(Benefit) expense for income taxes

(5,653

)

1,018

(12,530

)

214

Interest expense(1)

8,606

9,132

26,021

26,250

Depreciation and amortization

12,356

12,533

36,692

35,486

Non-GAAP EBITDA

$

18,320

$

25,637

$

18,248

$

33,626

Share-based compensation

959

188

2,111

2,088

Severance related costs(2)

344

1,711

1,040

2,046

Other non-recurring costs(3)

1,297

2,035

6,305

4,655

(Gain) loss on foreign currency exchange(4)

(54

)

4,731

2,884

(472

)

Mark-to-market adjustments, net(5)

(229

)

307

128

543

Impairment of intangible assets(6)

992

Non-GAAP Adjusted EBITDA

$

20,637

$

34,609

$

31,708

$

42,486

Contacts:

For AgroFresh Solutions, Inc.
Jeff Sonnek - Investor Relations
ICR Inc.
Jeff.Sonnek@icrinc.com
646-277-1263

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