AgroFresh Solutions, Inc. (AGFS) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to AgroFresh Solutions First Quarter 2022 Conference Call. Please also note, today's event is being recorded. At this time, I would like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Thank you, and over to you, sir.
Jeff Sonnek: Thank you, and good afternoon. Today's presentation will be led by Clint Lewis, Chief Executive Officer; and Graham Miao, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. 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 and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the tables included in the slides that will accompany this presentation as well as the press release, which can be found in the Investor Relations section of our website at agrofresh.com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I'd now like to turn the call over to Clint Lewis.
Clint Lewis: Thank you, Jeff, and welcome to everyone on the call. The first quarter marks the first half of the Southern Hemisphere growing season, and while most of the harvest has yet to commence, we are off to a solid start in the first quarter. This quarter also shows the benefit of our diversification strategy, leveraging our global footprint and the breadth of our product portfolio to deliver both revenue and EBITDA growth, while managing through adverse weather conditions that impacted select Latin American markets such as Brazil and Chile. With the first quarter in hand, I'm pleased to reaffirm our goal to drive growth in both net sales and adjusted EBITDA through continued strong growth in diversification and commercial execution this year. With that, I'll transition into the business drivers for the quarter. As a reminder, to further assist your understanding of our business and monitor the progress of our strategy to grow through diversification, we are providing you with additional disclosures on both the geographical and product solutions basis. The details can be found in our supplemental earnings deck on the Investor Relations website. Diversification revenues accounted for 43.3% of consolidated revenues for the trailing 12 months ending March 31, 2022, versus 39.7% in the trailing 12 months ended March 31, 2021, representing an 11.2% increase. This marks our fifth consecutive quarter of double-digit diversification category growth. We define our diversification category as the components of our business, excluding SmartFresh for apple, which covers all other crops, solutions and technologies. While we will continue to defend our SmartFresh apple business, we expect continued growth to be fueled by our diversification strategy. Success in diversification also helps to build a natural hedge against certain known risks in agriculture such as weather. Further, diversification across products, platforms, crops and geographies minimizes the adverse impact that any one of these variables can have on our results. From a geographical perspective, our Europe, Middle East and Africa region generated 24.4% growth in sales or an increase of $2.5 million for the first quarter of 2022 versus the prior year period. Growth was driven by SmartFresh and Harvista in South Africa, which experienced an early harvest season and a larger crop size, resulting in an increased need for storage and freshness solutions. Additionally, momentum in our fungicide and disinfectants category was especially strong in the region driven by market penetration and product expansion. Latin America, which represents our largest region during our Southern Hemisphere season comprised about half of our first quarter revenues and decreased 8.2% versus the first quarter of 2021. The decline was primarily driven by lower sales of SmartFresh in Brazil, where the industry was met with severe weather that resulted in a crop that is estimated to be approximately 30% lower than the 2021 crop, which was their largest of the past decade. However, as always, in the first half of our seasons, there's an element of sales timing at play due to varied harvest windows relative to the prior year. We are seeing this dynamic in Chile this year, which was lighter in the first quarter versus the prior year but is expected to rebound in the second quarter and second half of the southern hemisphere season. From a product solutions perspective, we achieved growth across each of our diversification categories in the first quarter when compared to the first quarter of 2021. In terms of dollar contribution, I'd highlight our other category, which benefited from sales of our Control Tech equipment in Spain and Chile, and contributed about $0.9 million of growth as well as our fungicides and disinfecting category that I mentioned a few moments ago, which grew nearly 19% in the first quarter and contributed $0.8 million of growth versus the first quarter of 2021. Combined, these categories drove $1.7 million of growth during the first quarter. Our Other 1-MCP, which represents our continued focus to leverage our SmartFresh franchise beyond apples and into other crops and geographies and includes key solutions such as Harvista and EthylBloc, grew 4.5% versus the first quarter of 2021. Rounding out our diversification was the coatings category, which grew by 14%. These gains versus the prior year period were partially offset by our SmartFresh for apple category, which decreased 7.5% primarily due to the extreme weather in Brazil that limited apple production. In summary, we are off to a good start this year. As we look to the balance of the southern hemisphere season and the rest of 2022, we will continue to advance our diversification strategy while continuing to defend our strong industry-leading franchise in SmartFresh for apples. As the pandemic has eased, my leadership team and I have been traveling to meet with a number of our customers, both domestically and abroad. One conversation with a customer in the Pacific Northwest region continues to resonate with me. He shared a very simple yet impactful perspective on the important role we play within his business, noting that as a grower processor, they have a tremendous investment tied up in their harvest. The preservation of the value of their fruit in storage is paramount and is something every grower loses sleep over. His confidence in the performance of SmartFresh and our other solutions could not be overstated. And it's feedback like this that reinforces the importance of the work that we do to support the post-harvest industry, and motivates our team to continue to find ways to support our customers every single day. I'm energized by their positive feedback on the quality of our products and our people. And I'm reminded of our duty as the industry leader in the post-harvest freshness solutions. Customers recognize our unwavering commitment to service and the support we provide to ensure that they are able to deliver a consistent supply of high-quality fresh produce to the market. I continue to be very encouraged by the progress we are making towards developing new capabilities and the experienced team that has been bolstered with a number of new additions to advance our growth through diversification strategy. I'll now pass the call to Graham to speak to some of our financial highlights. Graham?
Graham Miao: Thank you, Clint, and good afternoon to everyone. Net sales for the first quarter of 2022 increased to 2.3% to $39.9 million compared to $39 million in the first quarter of 2021. Excluding the impact of foreign currency exchange, revenue increased 5.5%. As Clint discussed, the net sales increase was primarily driven by leveraging our product portfolio of diverse solutions with each of our diversification categories generating growth in the first quarter. Gross profit for the first quarter was $28 million compared to $28.7 million in the prior year period, and the gross profit margin was 70.1% as compared to 73.5% in the prior year period. The margin variance is primarily mix related and reflects our transition to a more diversified product portfolio. Gross margin was further impacted by higher materials costs associated with inflationary forces. However, we are working hard on both cost savings and the pricing initiatives to help mitigate these headwinds and expect some relief later in the year as we generate sales on lower-cost inventories. While we always strive to maximize margin, our primary focus is on generating gross profit dollar growth, consistent with our growth through diversification strategy. Research and development costs were $3.1 million in the first quarter of 2022 compared to $3.3 million in the prior year period, driven primarily by the timing of projects. Our investment in R&D provides for increased support of product diversification activities to expand our registrations to new crops and geographies, develop new proprietary solutions, build out our coatings offerings and strengthen our technical services in alignment with commercial growth objectives. SG&A expenses decreased 12.2% to $11.9 million in the first quarter of 2022, as compared to $13.6 million in the prior year period, driven primarily by savings in administrative expenses. While cost control remains a focus for the business, our plan contemplates some resource reallocation this year as we steer the organization towards growth and revenue-generating activities. As a result, for the full year 2022, we expect SG&A to increase in the low single-digit range versus the prior year. First quarter 2022 net loss was $3.2 million compared to net income of $8.2 million in the prior year period. As a reminder, during the first quarter of 2021, the company recorded $14.4 million of other income associated with litigation settlement proceeds. Adjusted EBITDA increased by $0.8 million or 5.9% to $15 million in the first quarter of 2022, as compared to $14.2 million in the prior year period. Adjusted EBITDA margin for the trailing 12 months ended March 31, 2022 was 37.7%. As a reminder, our adjusted EBITDA margin performance should also be viewed in total for the year to align with the respective Southern and the Northern Hemisphere seasons, where our second half sales volumes translate to correspondingly higher margins for the business. Cash provided by operations was $2.5 million for the 3-month period ended March 31, 2022 versus operating cash flow of $23.3 million in the comparable prior year period. Adjusting for the one-time benefit of $14.4 million of litigation proceeds in the prior year, normalized operating cash flow from operations was approximately $8.9 million for the 3-month period ended March 31, 2021. The decrease in normalized cash flow from operations was mainly driven by higher accounts receivables balances as a result of the growth in net sales as well as incremental investment in inventory to procure materials in advance to mitigate supply chain concerns. For the 3 months ended March 31, 2022, capital expenditures were $0.6 million compared to $0.4 million in the prior year period. We continue to expect our annual capital expenditures to range from 2% to 5% of sales, consistent with our asset-light business model. From a balance sheet perspective, cash as of March 31, 2022 was $59.3 million, which represents growth of $6.4 million versus March 31, 2021, and reflects our focus on driving operating cash flow. Total debt was $263.1 million, and our $25 million revolver was undrawn as of March 31, 2022. This concludes our prepared remarks. Operator, please open the call for questions.
A - Graham Miao: Thank you. At this time, we will be conducting a question-and-answer session. The first question comes from the line of Joel Jackson with BMO Capital Markets. Thank you. Please go ahead.
Joel Jackson: Thank you. Good evening, everyone. Can you lay out what you expect how the rest of the year to play out? You had, I think 2% revenue growth this quarter, year-over-year 5.5% excluding FX. How would you expect the rest of the year to play out? And then in terms of margins, would you expect similar relative margin performance kind of year-over-year throughout the year? Or what other puts and takes are there?
Clint Lewis: Yes, Joel. First of all, thank you very much for joining in for the question and I appreciate the recognition of the net sales and the constant currency impact that would have had if you took out the foreign exchange. As we have discussed and trying to provide more kind of transparency around how we see the marketplace evolving, we've pegged kind of the growth in the post-harvest segment, all things being equal, somewhere in the range of 3% to 6%. And we see our growth for the full year being within that range. And again, continuing to also set the expectation for both sales and bottom line EBITDA growth in 2022. And so if you look at the 2% growth and the 5.5% within constant currency, you can look at that all kind of within range. And so to the second half of the year, which as you know, is the bigger part of our business as we think about the Northern Hemisphere, there is nothing that we're seeing without obviously the benefit of a crystal ball to say that we should not be able to grow within that kind of general market growth rate for full year 2022.
Joel Jackson: That's helpful. Now beyond like high-level sales margin, earnings kind of numbers, Clint, Graham, what milestones or what's being this year are on your piece of paper that you really want to hit, whether it's -- that you think they will make this year successful or not, whether it's a certain product or getting a certain product in a certain geography or it's a trial or something or it's a margin, or it's a customer getting into something or bundling something. Are there a few things that people aren't so obvious -- they're aren't so obvious that is on your list? Or if you hit that this year, you're going to be setting up for a very good maybe '22, but good '23 and good '24.
Clint Lewis: Yes, Joel, I appreciate that. And again, the way I would answer it. I hope the things that are clear on our list, on management's list are the same ones that our investors and the analysts that track our company and our industry are focused on. I want to make sure we're fully aligned around that. And so as I look at the higher order of those, and we just touched on it. First and foremost, is we want to continuously drive top line and bottom line growth. So to me, those are the most important. And again, to also hold ourselves accountable, as we look at the broader market in which we participate, we want to make sure, given our footprint and our capabilities, we're growing within that growth rate. So the first would be the top and bottom line growth. The second, as we've discussed, and I appreciate also your understanding of that is the criticality of the diversification growth. We have continued and the first quarter of 2022 is no different. We have continued to show double-digit growth, and I believe this is the fifth quarter that we have demonstrated consistent double-digit growth in diversification, and so that's the next big thing. And remember, diversification of the strategy is not only the path to drive incremental top and bottom line growth. It is also an important risk management strategy, because again, we sit in a world where weather is the biggest kind of headwind to outdoor agriculture. It's always of a presence, and that weather can be helpful, it can be challenging. But it's also unpredictable as to where that adverse or good weather is going to be. And so our ability to continue to drive diversification provides an ability that we are less impacted. We are less susceptible to an adverse impact in a particular market, on a particular crop, or in a particular product or platform that we have or a particular customer. So that is also another important metric that we will continue to keep top of mind for our investors and the analysts. I think the third is, and happily it's now moving to third and hopefully at some point it moves off the page. Historically, there's been this concern about our ability to defend our legacy SmartFresh apple franchise. And I think we have continued to demonstrate quarter after quarter, year after year, even in the face of competitive pressures that our franchise in SmartFresh apple continues to stay robust and industry-leading because our customers are not just valuing the quality, the consistency and the reliability of our SmartFresh apple product, but they also value the technical expertise that we bring to support our customers. Last, but certainly not least, again, I would be remiss if I did not focus on this given the inflationary times that we're in, lesser, but at the same time, I think important yardstick is as the broader market continues to deal with supply chain bottlenecks, inflationary pressures, we are also continuing to in a very disciplined way manage our business not only as we work with our own suppliers. And I think we've been advantageous around buying in anticipation of some of these and also as we continue to increase our volume of sales that's giving us some efficiencies with our suppliers, but also as we move into the second half of the year to smartly and responsibly take price, which has not been a consistent activity for AgroFresh in the past, given the larger disproportionate impact that SmartFresh for apples has had on our historical portfolio. So those would be the areas that I would kind of guide you to.
Joel Jackson: Is there any -- just finishing that question. Is there now -- and thank you for that, is there anything in the minutia that you're in the background looking at, whether it's trying to get a -- I got a FreshCloud -- a fresh cloud order trial done or it's a particular customer that maybe will use the product on avocados in Peru or it's someone trialing VitaFresh? Like is it -- is there something in the minutia that you're sort of looking at and hopefully come in and really drive '23 and '24, or not drive it but show that you're building the bricks or something bigger later.
Clint Lewis: Again, spot-on question. And the only thing I would take out the words matters to me, is take out the word minutia, right? So while we are early days, again strategically, and I appreciate your recognition of that. So as we think about diversification, we think about driving growth and those things that will continue to differentiate and drive value for AgroFresh. As we've talked about under that banner of diversification, the big rocks are Other 1-MCP, right? So it's leveraging our SmartFresh franchise in other crops, in other markets beyond apples. It's leveraging products like Harvista that is an analog of 1-MCP for new harvest. Again, it talks about the life cycle management of our franchise in 1-MCP. So that's one big rock. And then while still early, strategically it's important for us is advancing our natural plant-based new coating analog, which is VitaFresh Botanicals, and we expect also in the near future to secure organic designation, which we do believe that will also help differentiate both in the U.S. and in Europe. And then also we are continuing to innovate and I think lead across our competitive set with our FreshCloud platform in using data and real-time insights to help our customers understand timing of harvest, the quality of produce as it's moving from storage through the supply chain. We are encouraged about the customer trials across the different markets that we're getting both for VitaFresh Botanicals and with FreshCloud. So not minutia, strategically important, but also at the same time, still recognizing early in a selling cycle with these important customer trials.
Joel Jackson: Thank you very much.
Clint Lewis: Thank you, Joel.
Operator: Thank you. The next question comes from the line of Gerry Sweeney with ROTH Capital. Please go ahead.
Clint Lewis: Good afternoon, Clint and Graham. Thanks for taking my call. Thank you, Gerard.
Gerry Sweeney: Clint, sort of -- I don't know if it’s a follow-up, but I want to ask the question a little bit differently that was disposed. But diversification has been growing, as you said, 5 consecutive quarters, double digits. As we look out, is this a lot of blocking and tackling, looking at registrations, geographic expansion, maybe even some new products moving around. And then as you even said coatings and just a gradual continuous increase for several quarters or is there 1 or 2 things sort of in the background that sort of get you excited to say this could be a little bit more of an opportunity for us.
Clint Lewis: Yes, again, I appreciate, Gerard, the question. And at least as I'm interpreting the question and then you can tell me if we need to dig a little bit deeper. I mean, diversification as defined will continue to be the engine of growth for this company and will drive top and bottom line growth. We've also continued to set the expectation as our mix changes that while historically people may have anchored on gross profit margin, we want to really look at net gross profit dollars, which again, will show the volume expansion that we have -- we will have from diversification and the mix of different products and platforms beyond the traditional historical SmartFresh for apples. So as we think about driving growth in the near and medium term, we still get very excited about the organic opportunities to drive sustainable top and bottom line growth from that diversification strategy. I would say in terms of the levers to unlock that, we sit on today a fair amount of registrations for other crops and other markets and the opportunity for us now is really about putting the right commercial focus on exploiting those opportunities across the other markets.
Gerry Sweeney: Got it. That is helpful. I got you. So switching gears slightly, you talked about potentially looking at some pricing, I think later this year. That's resulted in, I think inflationary pressures. Pricing and AgroFresh not something we generally heard in the past, again, but that is a shift away from, as you said, moving that SmartFresh and getting that stable if not improving on your list earlier. But do you have the confidence that the market could bear some pricing across all categories? Or would it be a little bit more selective? I'm just curious as to your thoughts on that.
Clint Lewis: Yes. It's a really good question, Jerry. It's one -- again, I think we always have to be candid in transfer. That's not been part of the commercial discipline of the company in the past. To be fair, the company -- and this reinforces again the importance of diversification mix had been almost exclusively focused on defending the legacy SmartFresh apple business in the face of copycat generics, if you will. And these other copycats not having anything to lever against AgroFresh other than just price. And so our ability to be able to continue to command the industry-leading premium and have a good spread against those competitors and still hold on to a fairly significant global market share. Our success was more in holding price or modulating any decline in exchange for longer-term multiyear contracts and also those contracts allowing us to sell other products like our fungicides and disinfectants into existing apple customers. We've also deployed FreshCloud very strategically with a number of these large apple customers so that, again, they see the total bundle of products, not just SmartFresh apple, but they see the bundled products and services that AgroFresh has that the collective effect of all of those is allowing us to continue to hold that share and the price premium there. So holding price and having a clear line of sight around the sticky and the predictability of that price over a number of years given these multiyear contracts has been a success without question. Now given the inflationary pressures, and we're seeing even in the categories of all foods and specifically in fresh fruit and produce we're seeing the increase in prices at the retail and the consumer level and so it's giving us the opportunity, quite frankly, to smartly, selectively earn the right to take price, especially across that mix. And as we sunset some of the historical multiyear contracts that didn't have an index to change price, but now as we reset to reset those with a price premium to offset. And we believe as we move into the second half of the year, which is our biggest half with the Northern Hemisphere, where our expectation is to see more of an offset of those inflationary pressures with our ability to start taking price in a more disciplined way.
Gerry Sweeney: Also, I'm not sure -- well, if you can answer right here, but I believe some of the call generic copycat products, they actually have a different call structure because Agrofresh owns a molecule, and I believe copycats actually license the molecule or I don't even -- I'm not sure if they exactly manufacture it. Does that basis actually give you a little bit of a benefit in an inflationary environment?
Clint Lewis: No, because again, if I'm understanding the comment here, so in some respects they can reference our data package in some of the early tox and safety data, but it's not like they have to pay us to be able to register the product because we've done a lots of patent on it, right? So what helps build the moat for us is the ability; one, to secure other registrations for 1-MCP for other crops in the market, and we have to generate that data. And again, so too does the competitor that they have to be able to do that. The second is from a commercialization standpoint, we have the global footprint on a regulatory basis. We have the global footprint on the commercial side. So we believe that helps drive the "broader moat" and keeps the stickiness of the SmartFresh apple franchise.
Gerry Sweeney: Got it. And then one final question. I think you alluded to some changes in SG&A or reallocation. Just curious if that has to do with maybe a little bit more to sales or what the process would be on that in the second half, I guess?
Clint Lewis: Yes. So some of it, again, where you're seeing some favorability in SG&A in this quarter as we talked, is really more around timing. But again, we want to continue to demonstrate a discipline around focusing our resources and the capital entrusted to us by our investors to value generative, revenue-generating activities. And for us, given the previous point is really around how do we continue to expand our commercial footprint. Now again, we have a global footprint already. So as I've often said, from an ROIC standpoint, the most effective and efficient use of that dollar is as we book customer-facing, revenue-generating representatives in key markets to advance new registrations we have for high-value crops in other markets. And so that's really where the focus is.
Gerry Sweeney: Got it. Appreciate it. Thanks for your time and nice start to the year . So, I appreciate it.
Clint Lewis: Thanks, Gerard, appreciate very much.
Operator: Thank you. The final question comes from the line of Sameer Joshi with H.C. Wainwright. Please go ahead.
Sameer Joshi: Thanks -- thanks, Clint. Just a little bit more on the SG&A front. On the revenues, you had an impact of the dollar currency exchange. Was there a benefit that you derived on the SG&A because of that?
Graham Miao: Thank you for the question, Sameer, it's Graham. The benefit in our SG&A year-over-year reduction is primarily due to; one, is timing; and two, our cautious effort in reducing our administrative on admin line item. And for the full year, we do anticipate certain reallocation of resources to support sales revenue-generating activities.
Sameer Joshi: Got it. And then just sticking to that line item in terms of leveraging this going forward, for example, once you have more and more sales of VitaFresh and other diversification products, do you see the SG&A as a percentage of total revenues decreasing going forward and getting that leverage benefit?
Graham Miao: Absolutely, absolutely. And we had, thank you for the observation. And then just as a matter of fact that if we look at our P&L and the line items over the last 4 years, 3, 4 years and then starting 2018, '19, right? And then the percentage of revenue has actually over the years are consistently decreasing. So I agree with you that we should see -- continue to see that operating leverage to be reflected in the P&L.
Sameer Joshi: Got it. Good -- good to hear that. This next question may appear a bit naive, but let me just lay it out. Because of high inflation, is there an impact on demand for fresh produce that is requiring larger or more use of your products, whereby increasing your sales? I don't know if you understand what I'm saying, but is there an increase in demand indirectly because of inflation?
Clint Lewis: So a very good question, and I'm a strong believer there, and as we continue to tell the story of AgroFresh, here are no naive questions, so please bring them all on. I've always said there are undeniable facts that support the investment in a company like AgroFresh. And I've always said it's population growth, it's growth of the middle class. It's looking at the growth and the change of the diet and the staples that, that growing middle class has so more, and this is even irrespective of what we've seen over the last 2 years with the pandemic. But there is clearly a shift to have more of the share of the plate, if you will, be taken from fresh fruits and produce. We also know there is less arable land for farming. The challenge with natural resources like water and the impact of climate, not to mention the real continued push around sustainability and all of those things from an ESG standpoint. So all of those things, net-net, denote more of a tailwind to support AgroFresh and the space that we're in. And while there is always a concern that high inflation may temper demand, what I think we continue to see as we track externally the data, we're still seeing increases in consumption and volume. Again, there may be a trade across where they may be purchasing it, but we have not seen any tempering of demand for fresh fruit and produce. And given what I said before, if you look at it on the long term, which again speaks to the durability of AgroFresh's in investable opportunity, we see that demand for fresh food and produce only continuing to increase but stay robustly sustainable.
Sameer Joshi: Got it, thanks -- thanks for that clarification. And then just in terms of further diversification away from SmartFresh for apple, what is the acquisition strategy going forward? Is there a plan? Are you talking to a potential targets? Or will you be doing so in the next 6 to 12 months?
Clint Lewis: Yes, really good question. So I would say as a market leader, and this should never be taken as hubris, but as a market leader in the post-harvest space, the expectation that we set for ourselves is that we need to be remaining ever vigilant of new, novel, differentiated technology that will have a clear value proposition to the customer. The second is, which again, historically let's say, not always been a mode of thinking for strategics that are market leader regardless of the industry sector is we want to avoid any not invented here syndrome. We recognize as the post-harvest space continues to evolve and our ability to grow with that, we need to be focused on innovation that, again, is unique, differentiated with clear value proposition, and that's what's going to help advance the space. That said, as I mentioned earlier, I feel strong and our data continues to demonstrate that, that from a growth standpoint, organically the diversification strategy is working, it's continuing to grow, and that will be a significant contributor to our growth in the near and medium term. We will continue to remain vigilant for smart, responsible M&A or other structured partnerships, but our back is no way up against the wall of having to do something. The last thing I would say is we've put a very structured, clear, strategic and financial framework on how we think about M&A. Remember, the majority of technology, innovation in the ag space generally is coming from smaller start-up, academic, mom-and-pop, founder-led businesses. It's typically not in large-scale companies. So that means that from a value standpoint it's smarter and more efficient from that standpoint. Second, we've been very clear with our lanes of what we're focused on. So I've said before and just to repeat, 60% of our focus, time, energy and effort will be focused on external platforms that we believe are either on market today or can be on market within the next 3 years where the regulatory path is clear, it's known, and we believe there's a clear unique ideally IP-protected opportunity for us to advance. Commensurate with that, 30% then of our time, energy, effort focused dollars will be those where, again, unique, novel, differentiated, ideally IP protected, the regulatory path may not be as clear and the timing to market may be somewhere in the 4% to 7% range. And lastly, as we are a life science company, we need to be smart and responsible of those opportunities that may be further off, but that can be truly disruptive. But from a discipline standpoint, on a relative basis, that should comprise the remaining 10% of time, energy resources. So again, more fulsome answer, but it's -- I want to kind of convey the smart and responsible way we're thinking about inorganic growth opportunities.
Sameer Joshi: No, this is great. Thanks a lot for all the color, Clint, and good luck for the second half. Looking forward to it. Thanks.
Clint Lewis: Thank you so much.
Operator: Thank you. Ladies and gentlemen, at this time as there are no further questions, I would like to end the question-and-answer session and turn the conference call back over to the management for closing remarks.
Clint Lewis: Thank you very much, operator. And again, thanks for the questions. Usually, in calls like this we just simply end by saying thank you for your engagement, your investment, your interest in AgroFresh. I think given these very dynamic and volatile times as we look at the stock market in all different indices, none of us have the benefit of a crystal ball. But as investors continue to look for yield and returns, we believe that companies like AgroFresh really make for an attractive investable opportunity. One, we've talked about the macro theme that regardless of these volatile times will continue to be here and for the long term. Two, I think investors and analysts are looking for established companies that have a global footprint that have distinct capabilities and have real margins, gross margins, operating margins and generate cash flow. And I think if you look at it under those criteria, again we believe that AgroFresh provides a good opportunity even during these high volatile time. So none of us have the benefit of the crystal ball, but I know I speak for management that we are committed to continue to demonstrate the opportunity for AgroFresh to continue to grow sustainable and profitable top and bottom line growth. And with that, thank you for your interest and your support of the company. Take care.
Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. We do thank you for attending. You may now disconnect your lines. Thank you.
