AgroFresh Solutions, Inc. (AGFS) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the AgroFresh Solutions First Quarter 2021 Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today’s event is being recorded. At this time, I'd like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.
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. 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.
Clint Lewis: Thank you, Jeff. I'd like to extend a warm welcome to everyone on the call. I'd also like to thank our AgroFresh colleagues around the globe for their efforts, hard work and patience as I continue to work to get up to speed, and to our shareholders and the investment community for your continued support and interest in our company. This is an important time in the Company's journey and I'm thrilled to join this afternoon for my first earnings call as AgroFresh's new CEO. This is an opportunity that is especially exciting for me. The Company has an excellent foundation and our prospects for the future are bright. AgroFresh, a trusted brand in the post-harvest industry, known for our commitment to providing quality products and solutions. Our reputation is supported by our experienced sales and technical teams that deliver a high-touch service model that customers have come to rely on. We are an innovative organization that provides end-to-end solutions, not a provider of commodity products. This is visible in the diversity of our portfolio, our attractive margin profile and our geographic breadth. Our close proximity to our customers is the cornerstone of our market leadership in the post-harvest industry, which we aim to reinforce and grow in the quarters and years ahead. While it's still early in my onboarding process with just four weeks since my appointment, I want to be very clear, the Company's strategy to drive growth through diversification is sound and has my full support. My mandate is also very clear, to help this great organization identify and execute an operational plan that will provide consistent profitable topline growth for years to come. Like all businesses, we have our own unique set of challenges that I'll be working on overcoming, but let me be clear, there are many opportunities that I'll be focused on seizing. We have a global footprint with operations in over 50 countries that support a diverse base of more than 3,500 customers. This is a very attractive foundation that we will leverage and grow from in the future.
Graham Miao: Thank you, Clint, and a good afternoon to everyone. The first quarter begins our Southern Hemisphere season. As we have noted on numerous occasions, we think it's most valuable to look at the business in halves versus quarters to consider seasonal fluctuations that can shift sales between the quarters of each half. Net sales for the first quarter of 2021 increased 18.1% to $39 million compared to $33 million in the first quarter of 2020. Excluding the impact of foreign currency exchange, revenue increased 17.6%. The net sales increase was the result of growth across all product solution categories, which include SmartFresh for apples, SmartFresh diversification for other crops, Harvista, EthylBloc, fungicides and disinfectants and coatings.
Operator: Our first question is coming from the line of Joel Jackson, BMO Capital Markets.
Joel Jackson: Clint, Graham, I have a number of questions, I'm going to ask one by one. First, maybe a few housekeeping questions. Are you willing to share with us -- you're sort of showing now your revenue planned in different buckets than you had before, so splitting up, taking back some core. Are you willing to tell us here on 2020, what revenue was sort of full year in the five buckets or categories?
Clint Lewis: Joel, first of all, thanks very much for the question. And joining -- obviously, not just for this question but others, I'm going to probably lean on Graham a little bit more than I would otherwise moving forward, just given his deeper knowledge of the business and obviously, his involvement through the first quarter. I think specifically to your question, I do think, 1, we're trying to put forward kind of a different view and disclosure of the business to kind of help understand the nature of the business and the strategy that we're pursuing and we'll work to make sure at least we can compare that to the prior year. But let me ask Graham to comment further.
Graham Miao: Yes, absolutely. So in our first quarter start, we did disclose last year's comparable comparison.
Clint Lewis: And then for the whole year, Graham. For the whole year.
Graham Miao: Yes, yes. We will do so as well. As we said on today's call, we're going to adopt this new practice to be more -- to have more disclosure so to help investors gain additional visibility into our business, particularly as we drive diversification growth. So you will expect, in the second quarter, third quarter and for the full year, we'll consistently disclose in such a pattern.
Joel Jackson: Okay. You might consider wanting to release a full year 2020 like now, maybe helpful for investors to see how everything sort of comes out of the new categories, the new presentation like giving -- not waiting for the quarters to come?
Graham Miao: Yes, we'll be happy...
Joel Jackson: Maybe you can talk about -- If I look at Q1 performance, so you used -- Clint you made clear in saying that you'll get back some of the revenue growth in Q2, but you should end up first half going ahead. Can you give a little more color? Like the six-month revenue growth in Q1, once you get half that back in Q2 or can you give little more color.
Clint Lewis: Yes, I think some of it, again as we noted, had something to do with the timing of the seasons and the Southern Hemisphere between quarter one and quarter two. Obviously as we commented, the census in the Southern Hemisphere, they're returning to more of a normal crop size and season. So just to make the comps a little bit different -- but again, we feel good about the growth prospects on a consolidated basis for the first half. And Graham, if you want to add any additional comment? Yes, yes. And again, I think, Joel, the only piece -- and again, for others, and this is one of the many similarities to my previous background in the animal health side and specifically, on the animal act, right? One of the things we spend a lot of time trying to educate and provide context to investors in the investment community is understanding that we've got to manage our business the way our customers do and they manage it across seasons. And again, that's either between hemispheres, countries, markets and/or crops. And so, yes, we have a nature of reporting on a quarterly basis, but we're also going to do as best as we can to help everyone understand the variations again based on that segmentation of what happened in first half, second half based on the season in the region.
Joel Jackson: One thing that's interesting in the first quarter, and like you said, it's a half way -- you look at the business in halves and maybe there's some timing and some weird comps last year, but you saw gross margin performance shrink percentage wise in Q1, but EBITDA percentage expand. Just talk about the drivers of that in Q1, is that more of a Q1 transient thing? Gross margin percentage down, the EBITDA percentage up or that's something that's going to persist through the year?
Clint Lewis: Maybe I'll pass it to Graham first to comment.
Graham Miao: Yes. So the margin, a slight difference year-over-year, is primarily due to product mix as you see that -- as our product revenue continued to grow through diversity, particularly, not only on the 1-MCP after the management part of the business, but also antimicrobial fungicides business, which is growing particularly as we leverage our expertise in the prior acquisition of Tecnidex from the Spain, the Mediterranean region across to Latin America, that's where in the first quarter -- and Southern Hemisphere we see tremendous growth in our fungicide business and the coating as well, because of the cost of leveraging our expertise. And you will anticipate that overall, portfolio, gross margin and it will continue to evolve to reflect our product mix.
Joel Jackson: Just two more for me. Is that where should we -- should expect right now that you talked where you repaid some of the products, are you going to try and knock down that perhaps as much as you can or do you have some acquisitions in mind? You just didn't have any tax during Q1, how should we think about it?
Clint Lewis: Joel, maybe it was just me -- maybe I have to ask if you could repeat the question, I didn't catch most of that.
Joel Jackson: You said you redeemed close to 5 million of the preferred in Q1, is that right?
Clint Lewis: Yes, you're right.
Joel Jackson: Is that the goal going forward to try to knock down some of the perhaps over time or do you have some acquisitions you want to do? How should we able to...
Graham Miao: Thank you for the question. So for the first quarter with the litigation, it's -- it was a unique situation. In our original investment agreement with PSP as well as the refinanced credit agreement, and then the -- there was a cost that with the pending litigation proceeds, the Company is required to use 100% proceeds to pay down the debt as well as the preferred securities, which is exactly what we did.
Joel Jackson: That's helpful. And so, my last question is, Clint, you've been on the job for not a long time, but a bit. And what -- now that you're on the inside here, what do you think, what sort of the things aren't really appreciated properly at AgroFresh and what do you see you can really add value to tackle low-hanging fruits? Look at the R&D spend, what do you think you've now appreciated some weaks in the job that you can maybe attack?
Clint Lewis: Yes, no, I appreciate that question and I would say in the four weeks, it's amazing. It's only four weeks, but a lot has happened over those four weeks and I appreciate also very much the -- both the patience and the openness across the organization and globally to help me understand where we've been, where we're at and obviously, make sure there is a sense of clarity in what we're going. One of the things that I also tried to stress in my opening remarks is that there are tremendous similarities between our business here on the post-harvest of crop agriculture side and how it compares to the decade-plus time that I spent on the animal ag and a number of those high-level comparisons, right. 1, we're just talking in weeks, we operate not on quarters, we operate on seasons and yet whether it's apples or cattle, they have an inherent season. And interestingly enough, both places the season is more weighted to the second half as opposed to the first half. The second is, which is also very similar, is the importance of the direct access that we have to the end customer. That is a powerful opportunity because each of those customers, regardless of the market or the crops that they're responsible for, make their own individual value-based discussions and they are in the best position to understand with our support where our products, our services, our technical expertise can be woven together in a value proposition that makes sense for their unique needs. What again, I am very pleased with is the long-standing history, the legacy that our customers place on this space. There will be competition, that's okay, but the reality is, what you cannot replace, is the trust, is the knowledge of the business and the willingness for our account managers, our field-based technical teams to roll up their sleeves and sit or stand shoulder to shoulder with these customers to help them win with their customers, tremendous similarities. And I think that's a powerful thing for us to be focused on. Secondly, the focus around R&D, again, this industry, just like the industry I came from, is a regulated industry and that is regulated in all of the major and secondary markets in the world and I'm very proud of the R&D regulatory prowess that this team has in terms of their understanding of the regulatory landscape in each of these markets, the respect that they have earned in terms of the quality by which they do their work, because one of the most important drivers of our growth and diversification growth is how quickly we can get our products registered in every major market that makes sense. And so, that's also a great piece of it. And we also need to make sure we're balancing the desire to meet the customer needs, but to do it in a way that not only can align with a technical and regulatory path, but also we need to focus on the big return opportunities. And so, I look forward to working with the team, and with the team providing visibility to our external stakeholders, including the investment community to understand those projects that we feel are really going to meet the customer needs that we can deliver on and are going to move the needle to drive continuous sustainable profitable revenue growth.
Operator: Ladies and gentlemen, at this time, I'm showing no further questions. I'd like to end the question-and-answer session and turn the conference call back over to Mr. Lewis for any closing remarks.
Clint Lewis: Listen, I appreciate very much the interest and support of this company. I also appreciate your understanding that this is the first earnings call for the team, for me, but I want to thank the team. And also, I look very much forward to engaging with as many in the investment community to help you understand the great opportunities that this company has. Thanks for your time. Stay well.
Operator: Ladies and gentlemen, this does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.
