AgroFresh Solutions, Inc.

Good afternoon and welcome to the Agrofresh Solutions fourth quarter and full year 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 Mr. Jeff Sonick, Investor Relations at ICR. Sir, please go ahead.

Thank you and good afternoon. Today's presentation will be led by Clint Lewis, Chief Executive Officer, and Graham Mile, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements with 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 in the investor relations section of our website, agrefresh.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?

Thank you, Jeff, and welcome to everyone on the call. I'd like to begin by recognizing the conflict in Ukraine. While we don't have operations located in the country, we do have some partners with some exposure, as well as local customers using some of our products. As such, we want to send our thoughts and support to those that have been impacted by the conflict. We hope for a speedy resolution and are actively assessing how we can best support our partners and our local customers through recognized charitable organizations. With that, let me address our performance for the quarter. We completed our Northern Hemisphere season on a high note with strong fourth quarter net sales growth despite a delayed start to the season due to previously discussed weather impacts. This was consistent with our expectations and importantly, we met our goal of achieving full year 2021 growth in both consolidated net sales and adjusted EBITDA. Beyond meeting our financial goals, 2021 was pivotal in several respects. We advanced our growth through diversification strategy. We reallocated the necessary resources position the business for growth by adding new senior leadership and expertise across commercial and R&D functions. And we continue to successfully defend our SmartFresh Apple franchise, which remains the industry standard in post-harvest solutions. Diversification growth fueled our performance with a 15.9% increase for the full year 2021, capping off four consecutive quarters of double-digit gains in this important metric. Looking ahead to 2022, we are once again committed to driving growth in both net sales and adjusted EBITDA through continued strong growth in diversification and commercial execution. I'm also excited to announce that we've just released our inaugural ESG report, highlighting our decades-long experience and expertise in delivering products and solutions that are helping to meaningfully address the significant issue of food loss and waste in the fresh fruit and produce sector and continuing our commitment to help our customers achieve their sustainability goals. Nearly one third of all food produced for humans is wasted each year, including 50% of fruits and vegetables perishing before consumption. The need for solutions to address food loss and waste has never been greater. And I'm proud to say that AgriFresh plays a critical leadership role in this effort. The E and the S part of ESG is not a new focus or theme for AgriFresh. It is the very core of who we are as a company and what we do. We're an experienced and globally scale leader in post-harvest solutions. In our ESG report, we've announced a new set of goals that reinforces our commitment to reduce global food waste and its impact on the environment. Over the next five years, we're setting a range of ESG commitments and action steps that will ensure that our impact and our momentum continue. Our ongoing innovation efforts will be devoted to leveraging existing and identifying new technologies and solutions to support our customers' sustainability goals and driving the adoption of new sustainable solutions like our VitaFresh Botanicals line of plant-based coatings. We will also seek to do our part to encourage and enhance gender, ethnic, and racial diversity in our industry by making it a focus at all levels of our company. 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. Our diversification category was a standout contributor to growth all year, and we expect will continue to be the engine of growth as we move ahead. If you look at our business, excluding SmartFresh for Apple, which we define as our diversification category, covering all other crop solutions and technologies, This category grew 15.9% in 2021 versus the prior year and represented approximately 42% of total revenues for the year ended December 31st, 2021. Focusing on fourth quarter 2021 results, we saw a sequential increase in our diversification mix of approximately 70 basis points versus the third quarter of 2021. and an increase of approximately 380 basis points relative to the fourth quarter of 2020. And while there have been questions in the past about the resilience of our SmartFresh for Apple franchise, given ongoing competition from lower quality and lower priced competitors, I'm pleased to report that our team continues to do an effective job defending our SmartFresh for Apple business. On a four-year basis, this business was relatively stable versus the prior year, decreasing a modest 1.2% versus 2020. Importantly, while there has been some erosion in price, we are seeing underlying volume gains that have been driven by strong customer engagement, increasing the number of customers under long-term contracts, lower customer attrition, and returning customers. We continue to maintain industry-leading margins supported by the high quality of our products and commercial and technical teams. While we will continue to defend our smart, fresh 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, which was the largest sale contributor for the fourth quarter, experienced 15% growth in sales versus the prior year period. This was driven by timing of sales due to varied harvest windows relative to the prior year, as well as a successful harvest season in southern Europe for certain apple varieties, and ongoing growth of Harvista following emergency use permits in Europe. As expected, our second largest market, North America, declined 15.6% during the quarter due to an unprecedented heat wave, as discussed last quarter, that impacted apple production, particularly in the Pacific Northwest. This had a negative effect on the quality and yield resulting in lower volumes in storage. Rounding out our geographic mix of sales are the other markets of Latin America and Asia Pacific, which grew 29% and 13% in the fourth quarter, respectively, versus the prior year period.