AgroFresh Solutions, Inc.

Good afternoon and welcome to the Agrofresh Solutions fourth quarter and full year 2020 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 over to Jeff Sonick, Investor Relations at ICR.

Thank you and good afternoon. Today's presentation will be led by Jordy Ferre, Chief Executive Officer and Graham Mio, 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 accompany this presentation, as well as the press release, which can be found on the investor relations section of our website, agrefresh.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 Ferre.

Thank you, Jeff, and good afternoon, everyone. The last quarter of 2020 proved to be challenging with the smaller-than-expected North American apple crop, which decreased approximately 11 percent, creating lower storage volumes. We also face difficult comparisons in the prior year period in Europe, where the industry experienced later-than-normal harvest seasonality, which shifted sales from the third to fourth quarter of 2019. As a result, net sales for the fourth quarter of 2020 decreased 14.9% to $51.9 million versus the prior year period. Looking back at full 2020, we were met with heightened complexity due to the impact of COVID-19. We experienced delays in new diversification project rollouts, unpredictable short-term customer purchasing decisions, and local currency fluctuations that impacted our global operations. While we are obviously disappointed with the overall 2020 performance, Our business was better insulated from the pandemic's effects given the hard work our team has been doing to drive efficiencies and optimize our cost structure over the past two years, which translated to consistent gross margin performance and demonstrates the value of the Agrofresh service model. Additionally, we were extremely pleased to execute on our July 2020 comprehensive refinancing amid the disruption, which helps ensure that our business remains sound, supported by a strong cash flow generation. Looking ahead, we are energized about the opportunities in 2021. We believe that our diversification pipeline and the innovative solutions that we are bringing to the marketplace in 2021, such as our recently announced Buy the Fresh Botanicals line of plant-based coatings, as well as our growth platforms, such as Harvista and FreshCloud, a proprietary digital technology platform, will return the company to growth in 2021. We believe that AgriFresh remains in a strong position as the preferred global provider of post-harvest quality solutions. The fresh products industry is consolidating creating larger global participants as per the recent announcement of the merger between the Brazilian leader in melons, Agricola Famosa, and the largest producer and distributor of citrus and stone fruit in Europe, Citri & Co. Agrofresh has a distinct advantage to service large global enterprises such as this with our proven track record of quality and innovation and our global reach. Turning to slide four, SmartFresh revenue decreased 10% in 2020 amid a challenging environment, especially in Latin America and the U.S., which both experienced some optimal harvest. According to the World Apple and Pear Association, or WAPA, the Southern Hemisphere apple crop size decreased 4.3% in 2020 versus the prior year. Further compounding these headwinds was a smaller U.S. apple crop, which, as I mentioned, was 11% below 2019. In Washington State, growers saw a crop decrease of 15%, which was nine points worse than the original projections in August 2020. We also lost some market share in the U.S. that we had regained in 2019. This is reminiscent of a trend we experienced in 2018, where after leaving Agrofresh, some customers had mixed results from competing products and came back to us the following season due to our demonstrated quality and service capabilities. Sales of Activis fogable fungicides increased by 56% in the Pacific Northwest, capturing about 10% of that market. We plan to continue adding new geographies in 2021. This is an important development for SmartFresh, as we see an evolution towards one co-application on the one quality service platform. We also see FreshCloud playing an important role in our vision of a cohesive platform, and its integration with SmartFresh is no exception. In Europe, SmartFresh Apple revenue was down 9% in 2020, driven by a smaller-than-average crop. while revenue was up 11% for other crops such as pears and kiwis, which together represent 25% of SmartFresh sales in that region. On the other hand, a larger crop drove SmartFresh revenues up 16% in Turkey and 20% in Japan. Turning to slide five. In 2020, our revenue contribution associated with the apple crop was 71%. compared to 72% in the prior year period. Citrus remains our second largest crop, representing approximately 12% of total revenue, while pears is third, with approximately 8%. The flower market was a casualty of the pandemic and resulted in lower ethyl block sales, which decreased 27% versus the prior year. From a diversification standpoint, approximately 7% of 2020 revenue is associated with crops that we have targeted to drive further growth. The approach we are developing to drive diversification is crop specific. We are developing comprehensive solutions that go beyond SmartFresh and combine a variety of our post-harvest technologies such as coatings, application equipment, or digital to deliver meaningful ROI to our customers. With this in mind, we have established local commercial and technical presence in non-traditional apple markets such as California, Mexico, and Peru to pursue opportunities in crops such as avocados, tomatoes, and tropicals. In the U.S., our trials with key broccoli producers continue to progress despite the temporary delay associated with the pandemic, which include partnering with the producers for presentations to retailers. We also recently announced the launch of a range of plant-based coating products under the VataFresh Botanicals brand. VataFresh Botanicals is a proprietary plant-based portfolio of solutions for a wide variety of crops, from citrus to avocados to mangoes. Our coatings utilize anti-thirst technology to boost the skin's natural protection. creating a double skin membrane that reduces dehydration, maintains weight, and locks in produce freshness throughout the supply chain. The products consist of different coatings with technical performance adapted to each crop's unique physiology, as well as allowing retailers to make attractive consumer claims. Importantly, we expect our first meaningful customer adoption of VitaFresh botanicals for use in avocados to be announced soon. Please turn to slide six. Harvesta 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 Harvesta 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, leading to improved quality. In 2020, harvester revenues grew by 8.5%, despite a disappointing year in the U.S., where we did not meet our expectations. In markets outside the U.S., harvester revenue doubled, driven by recent approvals in Australia and Brazil, emergency use permits in Spain, Italy, and Poland, and further supported by double-digit growth in Turkey and South Africa. In the U.S. market, we have prepared for additional demand based on our early experience in Australia where pandemic-induced labor shortages generated demand for Harvista. We saw an opportunity ahead of the U.S. season to promote the product and raise visibility of its labor management benefits. However, The widespread uncertainty among our customers lowered their propensity to utilize quality enhancing solutions such as Harvista and was compounded by better than expected labor availability as the marketplace adjusted to new safety protocols. On the regulatory front, the expansion of approvals is an important tool to drive greater market access and Harvista remains a key element of our crop diversification strategy. In November 2020, we received approval to use Harvista for apples in New Zealand and expect to generate revenue in this market during the 2021 season. Additionally, in February, we were pleased to receive regulatory approval for blueberries in Argentina, which builds upon approvals in Chile and the U.S. where we are in market this season. Turn to slide seven. Technidex provides Agrofresh with crop and technology diversification via an established portfolio of fungicides, coatings, and waxes, as well as expertise in the citrus post-harvest market. During the fourth quarter of 2020, Technidex revenue grew 21%, which was a recovery we anticipated due to a larger crop as well as new customer gains in Spain after some of the headwinds we experienced during the first half of the year. In 2020, Latin America grew revenue by 21%, overtaking the Middle East as our second-largest selling region behind Europe. Growth in Latin America was offset by a decrease of sales in Egypt, caused by account receivable issues that were resolved in December. Sales in our three core markets of Spain, Portugal, and Morocco were flat for the year, but we are confident that the positive fourth quarter is an inflection point that will be sustained and continue into 2021. Our domain expertise in coatings at Technidex was central to our ability to develop and launch the VitaFresh botanicals line. The commercialization of this product also demonstrates the reach of our diversification initiatives across the DAGRAFresh organization. We plan to utilize our facility in Valencia, Spain for the partial manufacture of the product. Technidex also provides the necessary equipment infrastructure and expertise to apply the coatings through our supply chain around the world. In 2020, we migrated several key functions and capabilities to our site in Valencia, Spain. This now serves as our European headquarters, as well as the manufacturing location for our SmartFresh tablets and Harvista packages. During 2021, we will continue to leverage our expertise through our facility in Valencia to capture additional cost synergies. Please turn to slide eight. FreshCloud is our digital technology platform that provides real-time data and insights about managing and maximizing quality from orchard to the consumer. These are powerful supply chain insights, enabling better and more informed decision-making to maximize customer returns. In 2020, we successfully roll out our new digital tool, FreshCloud HarvestView, which automates, optimizes, and increases the speed of food maturity assessment. FreshCloud HarvestView is a complement to Harvista applications, equipping produce operators with data-driven insights that are part of a deeper understanding of food maturity and storage potential prior to harvest. In 2020, we processed and measured starch in a total of 12,000 apple samples in the U.S. alone, proving the stability of our software. We are rolling out the technology during the southern hemisphere season, and as of February, we had processed a total of 2,000 samples in those markets. As an example, we have signed an agreement with Hortec, which is South Africa's leading food quality and maturity management service provider, to utilize Fresh Cloud HarvestView with apple growers during the 2021 season to optimize harvest management and help to enhance food quality and yield. In 2021, we are integrating Fresh Cloud HarvestView into our Fresh Cloud Quality Inspection tool. Fresh Cloud Quality Inspection is a proprietary cloud-based mobile quality management service that digitalizes the quality control process by capturing, organizing, and analyzing quality metrics in real time. The integration with HarvestView will provide customers with an end-to-end quality and traceability tool. In December, we announced that Montague, one of Australia's largest food growers, will utilize fresh card quality inspection to drive a comprehensive transformation of its entire quality system and decision-making process for the management of its fresh products. Today, we are pleased to report that the system went live and is now operational. Additionally, we are excited to announce that Blue Star Growers, based in Washington State, has signed a contract to use our fresh cloud quality inspection within their operations this year. They are our first U.S. customer adoption and have a reputation for innovation as they pioneered the installation and use of ripening technology for pears more than 15 years ago. We look forward to enhancing the quality platform with our digital technology capabilities, while several other ongoing trials with products operators across the U.S. show promise, and we anticipate additional customer adoptions in the near term. We are very excited about the inroads we are making with FreshCloud. Customers are seeing the value of our analytics, and we are looking forward to leading the industry with our revolutionary platform, with the goal of redefining how quality food waste prevention, and traceability is managed in the global fresh produce industry. I'll now let Graham speak to some of the financial highlights.