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AgroFresh Solutions Reports Financial Results
Pennsylvania Ag Connection - 03/12/2019

AgroFresh Solutions, Inc., a global leader in produce freshness solutions, today announced its financial results for the fourth quarter and full year ended December 31, 2018.

"2018 was a transitional year for the Company, complete with leadership changes that have refocused the enterprise on cost-efficient sustainable growth. Contributions from a broader and more diversified product offering and broader crop reach are the key underpinnings of our long-term strategy. Sales coming from crops other than apples were 30% in 2018 versus 19% in 2017, and revenues outside our core SmartFresh apple business grew in the high single-digits for the full year 2018. The acquisition of Tecnidex in December 2017 contributed decisively with revenue growth of 9% in 2018, and the ongoing penetration within crops such as pears continues to be a key source of growth for the Company on a global basis. Sales outside North America represented approximately 75% of the revenue mix in 2018, and Europe is now our largest market representing over 40% of 2018 sales. Collectively, these elements helped offset the negative impact of an earlier than normal harvest in the Pacific Northwest region, which resulted in lower yields and profits for our customers, and in-turn curtailed the utilization of solutions such as Harvista across the industry.

"As we look to the future, we see our core business remaining stable and our growth diversification initiatives becoming a greater proportion of the business. We also expect the geographic and customer diversification of the business to continue to mitigate risk from local fluctuations in crop size. In fact, in 2018, we serviced approximately 3,900 customers globally, an increase of approximately 200 versus 2017, and expanded our geographic reach from over 45 countries in 2017 to over 50 countries in 2018. Finally, our newly refinanced revolver, the implementation of our own SAP system and the stabilization of our operations as a standalone public company should all contribute to reduced operating costs in 2019. Overall for 2019, we expect improved financial performance and further progress in our diversification strategy as proof of the resilience of our business," commented Jordi Ferre, CEO.

Net sales for the fourth quarter of 2018 decreased 1.5%, from $54.1 million in the fourth quarter of 2017 to $53.3 million in the fourth quarter of 2018, driven by softness in the Pacific Northwest due to an earlier and smaller than normal apple harvest. This was partially offset by a full quarter of Tecnidex, which contributed $7.8 million in the fourth quarter of 2018. Net sales for the full year 2018 increased 9% to $178.8 million versus $164.0 million in the prior year. The increase was driven by the addition of Tecnidex, which contributed growth of $18.1 million, and SmartFresh growth in Europe, partially offset by SmartFresh declines in the Pacific Northwest region of the United States where the business was negatively impacted by a smaller than normal apple harvest. As we continue to implement our diversification strategy, and with the addition of Tecnidex, SmartFresh sales in the Pacific Northwest now represent less than 10% of the Company's overall revenues.

In the fourth quarter of 2018, gross profit decreased 7% to $40.0 million compared to the prior year period. Gross margin was 75.0%, consistent with expectations as the Company executes its strategy of diversifying revenue mix with a broader assortment of product solutions such as Harvista, RipeLock and the Tecnidex range of products. For the full year 2018, gross profit increased 1% to $132.5 million compared to the full year 2017. Gross margin for the full year 2018 was 74.1%, a decrease from 80.1% in the prior year, due to the Company's diversification initiatives, strategic pricing in the Pacific Northwest and the impact of ASC-606 deferred revenue.

Research and development costs were $3.6 million in the fourth quarter of 2018, down slightly versus the prior year period, and for the full year 2018 were $13.9 million compared to $13.8 million in the prior year. Tecnidex added $1.2 million of research and development cost for the full year. Excluding these costs, research and development costs were down versus the prior year period, reflecting more targeted research activities in 2018.

Selling, general and administrative expenses decreased 11% to $15.6 million in the fourth quarter of 2018 as compared to $17.5 million in the prior year period. The decrease was primarily driven by cost optimization initiatives, partially offset by Tecnidex contributing a full quarter of expenses in 2018 versus one month in 2017. For the full year, selling, general and administrative expenses including Tecnidex were $65.8 million, up 6% versus 2017. Excluding Tecnidex, selling, general and administrative expenses were $60.6 million, down 1% for the year, reflecting the impact of cost optimization.

Fourth quarter 2018 net loss was $1.9 million, compared to net income of $23.4 million in the prior year period, which included a $24 million one-time benefit from tax related matters. For the full year 2018, net loss was $30.2 million, compared to net income of $23.5 million in 2017, which included $26.9 million of benefits associated with tax related matters and contingent consideration along with $13.3 million of gains on foreign currency transactions.

Adjusted EBITDA was down $0.9 million to $24.4 million in the fourth quarter of 2018 as compared to $25.3 million in the prior year period. For the full year, adjusted EBITDA was essentially flat at $66.9 million compared to $67.2 million in the prior year.

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