AgroFresh Solutions, Inc.

Good afternoon and welcome to the Agrofresh Solutions third quarter 2020 conference call. All participants will be in a listening 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 Sonick, investor relations of ICR. First, please go ahead.

Thank you and good afternoon. Today's presentation will be led by Jordi Ferre, Chief Executive Officer, and Graham Mille, 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 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. Please refer to the tables included in the slides that accompany this presentation, as well as the press release, which can be found in the investor relations section of our website, agrofresh.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. I'd now like to turn the call over to Jordy Ferrer.

Thank you, Jeff, and good afternoon, everyone. Please turn to slide three. We had a solid performance in the third quarter, which represents the start of the Northern Hemisphere apple season. As a reminder, the Northern Hemisphere season continues through the fourth quarter, and the season in total represents about two-thirds of our annual revenue. Revenues increased 7.8% versus the prior year period, and gross profit margin increased 280 basis points to 74.4%, which demonstrates the strength of our value-added service platform. Additionally, our cost optimization initiatives continue to deliver strong results. SG&A expenses improved by 10% in the third quarter and 15% for the first nine months, compared to the prior year periods. When taken together, Our operational improvements and cost containment efforts drove a 530 basis point improvement in our adjusted EBITDA margin for the first nine months of 2020, resulting in adjusted EBITDA growth of 14.8% despite a 3% decrease in sales. Thanks to the preemptive measures we put in place in preparation of the northern hemisphere season, we have been able to deliver uninterrupted service to our customers in spite of the challenges presented by the COVID-19 situation. I am truly proud and humbled by the determination that our Agrofresh technical and operational staff exhibited in such a difficult environment. I also want to recognize the efforts by our corporate team to successfully close comprehensive refinancing transaction in July. This transaction was a significant milestone for Agrofresh, as it substantially improved our capital structure and established a highly advantageous collaboration with our new strategic investor, Payne Schwartz Partners. Together, with the support of an improved capital structure, we are working diligently to accelerate our growth strategies which include organic and external opportunities. Turning to slide four, the fundamentals of our smart, fresh business remain solid through the first nine months of 2020 amid a challenging operating environment and shifting market dynamics that were brought about by the pandemic. We saw a return to normal harvest timing in Europe this year versus last, which caused SmartFresh revenues in that region to increase 25.5% during the first nine months of the year versus the prior year period. In the United States, we faced some challenges that caused revenues to come in below our expectations, including lower than expected crop size, as well as some new price-driven competitive entrants. However, given our leadership position in the market that is backed by an exceptional quality and high-touch service approach, we were able to drive an increasing gross margin during the third quarter. As we've seen time and again, a low-price, low-touch approach is not sustainable with customers that expect the quality and service that AgroFresh has provided to the marketplace for decades. We saw some encouraging signs of recovery in the flower market during the third quarter following a precipitous decline earlier in the year due to the pandemic. As a consequence, the performance of Ethel Block's solution improved on a relative basis and experienced a less dramatic revenue decline of 10% in the third quarter versus the prior year. As we've mentioned previously, we are confident Ethelblog will return to growth next year once we move beyond the difficult challenges brought about by the pandemic. Importantly, I want to reiterate where our organization is focused. We are much more than a company providing near and post-harvest applications for fresh products. We are driving towards a technologically enabled future for our industry and participating as an ag-tech innovator utilizing our fresh cloud capabilities as the foundations. We aim to deliver novel and highly customized confidence-inspiring solutions tailored to unique customer needs that are based on an unmatched depth of agricultural experience, product expertise, and data-driven insights. FlexCloud is being integrated into all of our solutions and provides a formidable competitive advantage that leverages our decades of proprietary insights. Turning to slide five, for the first nine months of 2020, our revenue contribution associated with the apple crop was 69% compared to 71% in the prior year period. The improved diversification in crop mix was driven by a recovery of the pear crop in Europe and the promising progress we are making with SmartFresh in avocado, tomato, melon, and kudwis. Our apple business is also becoming less dependent on SmartFresh, which represented about 70% of our total apple business in the quarter, with the balance accounted for by growing harvester and fungicide sales. Our crop diversification team continues to develop additional opportunities in both new crops and geographies. For example, we have ongoing customer trials in the U.S. and Australia involving broccoli. Additionally, we have continued making commercial progress in avocados and mangoes in Peru and Mexico. Trials in Mexico with a major tomato supplier to the U.S. market were positive, with confirmed adoption in 2021. The solutions we are developing are crop-specific and go beyond the application of SmartFresh. They combine with other technologies such as coatings, packaging, equipment, and fungicides to create tailor-made quality systems for each crop. We have initiated a series of crop-specific webinars showcasing our solutions to the industry, starting with avocados and tomatoes. Arista is also key to our diversification initiative. Beyond the existing regulatory approvals in the U.S. and Chile for cherries and blueberries, we are running a number of trials in other high-value crops, which we expect will add to our ability to diversify the business beyond apples. During the third quarter, our regulatory team, was able to support our diversification initiatives by securing new product registrations for SmartFresh SmartTap for mangoes in Peru, SmartFresh Inbox in New Zealand for both apples and cubies, and extended usage of SmartFresh Inbox in the U.S. for broccoli, melon, cherry, peach, nectarine, plum, persimmon, and avocado. We turn to slide six. Harvista technology slows the natural ripening process. allowing apples more quality time on the tree and can be applied up to three days before harvest. Customers use Harvista to develop better color and size in their fruit, expand the harvest window by up to 14 days, manage orchard labor forces, and time their harvest for optimum fruit maturity. In the third quarter, we fell short of our expectations for Harvista sales in the U.S. due to COVID-19-related uncertainty that lowered the propensity for customers to utilize quality-enhancing solutions such as Harvista, compounded by better-than-expected labor availability, which we thought would provide an opportunity for us to increase penetration. While the industry was better prepared than initially feared, we still generated global Harvista growth of 7.9% for the third quarter. Global traction with Harvista was driven by a return to strong growth in Turkey and emergency uses permits granted by local regulatory authorities in Spain, Italy, and Poland. As a reminder, the permit applications were submitted in partnership with the respective local Apple industries. And we were granted the permits ahead of the official registrations that we are expecting for 2021 and 2022. As a result, the first year of Harvista in Europe was a promising success with high customer satisfaction in improving quality and labor management. The Harvista trials for blueberries in the U.S. were completed successfully, confirming efficacy to improve firmness at harvest and for after two weeks of storage. Consequently, we are preparing a full U.S. launch during the first quarter of 2021. We anticipate a strong finish to 2020 for Harvester. We expect its longer-term growth potential to continue to be driven by additional regulatory approvals along with a rollout of our new digital tool, FreshCloud HarvestView, in new geographies and crops. The launch of Fresh Club Harvest View was a success as we were able to process a total of 12,000 samples, proving the stability of our software. For next season, we plan to monetize this new tool by adding new features to address a critical source of customer value. We will be providing customers with an analytical dashboard for understanding the underlying factors and progress of the food within the supply chain, from the fields all the way to the customers receiving docks. Turning to slide seven. Since our acquisition of Technodex in December 2017, it has provided AgroFresh with crop and technology diversification via an established portfolio of fungicides, coatings, and waxes. We have also been extracting cost synergies from Technodex this year through a relocation of our European headquarters to Valencia, Spain. Additionally, we have leveraged the lower labor and manufacturing costs available in Valencia by shifting our SmartFresh tablet manufacturing there, which has created material savings compared to when this operation was conducted in France. Technidex has also allowed us to extend our regulatory expertise to citrus and given us access to other product categories such as fungicides and coatings that are relevant to a broader range of crops. During the third quarter, we obtained approval in Chile for permethanol fungicide used on citrus, apples, pears, cherries, peaches, nectarines, and plums. We have also obtained registration in Argentina for a wax coating for apples. These will be welcome additions to our portfolio as we approach the upcoming Southern Hemisphere apple season in Latin America. During the third quarter, Technidex revenue returned to growth, generating a 12% increase over the prior year period. We expect the trend will continue during the fourth quarter, based on the improvement in Spain and Morocco's citrus production, which was negatively impacted during the prior year season. As a consequence, we continue to expect Technidex to generate growth for full year 2020 versus 2019. Please turn to slide 8. FreshCloud is our digital platform that provides our customers with real-time data and insights about product freshness and projected shelf life. These are powerful supply chain insights, enabling better and more informed decision-making to maximize customer returns. Beyond the launch of FreshCloud HarvestView, which I referenced in my remarks related to Harvista a few moments ago, During 2020, we launched a breakthrough FreshCloud quality inspection tool. Quality inspection is a proprietary cloud-based mobile quality management service that digitizes the quality control process by capturing, organizing, and analyzing quality metrics in real time. The service takes what has traditionally been a manual and cumbersome process and combines digital information, including analytics, artificial intelligence, and machine learning to provide a heightened level of transparency that enables greater quality control and ultimately reduce foot loss. During the third quarter, we have worked with an important new FreshCloud global customer, which is adopting a FreshCloud quality inspection across its entire operations. The customer has an extensive network of growers and logistic experts with a focus on apples, pears, stone fruit, and tropicals. He has a stellar reputation of working with leading food manufacturers and retailers. Quality is at the center of their strategy, and we are excited by the opportunity to leverage our FreshCloud technology. We continue to work on a series of trials with North American produce operators to similarly enhance their food quality and freshness. These trials are showing positive results, and we believe we are well-positioned to leverage them into further customer adoptions in the coming months. In 2021, we are planning for the integration of HarvestView with quality inspection, extending quality inspection from the orchard to the packhouse. As we have mentioned in previous communications, FreshCloud is an evolutionary journey, with a goal of redefining how quality and food waste prevention are managed across our customer base. I'll now let Graham speak to some of the financial highlights. Graham?