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spk01: 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.
spk05: 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?
spk03: 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.
spk04: From a product solutions perspective, we achieved growth across each of our primary categories.
spk03: In terms of contribution to the fourth quarter, I'd highlight our other one MCP category, which represents our continued focus to leverage our SmartFresh franchise beyond Apple and into other crops and geographies. This includes key solutions such as Harvista and Epiblock. Other one MCP sales grew 43% versus the fourth quarter of 2020 and contributed $2.5 million to growth driven by SmartFresh diversification growth the momentum in Harvista that I mentioned, and increase in EpiBlock as the flour industry prepared for supply chain disruption ahead of key holidays. We were pleased with our fourth quarter performance of SmartFresh for Apple business as well. While growing a modest 3%, the dollar contribution of $1.2 million is significant and reflects the size of this business. Furthermore, we exceeded our expectation in the fourth quarter as we expected the category to see declining sales versus prior year. The upside relative to expectation was the high quality of fruit and late-season apple varieties that carry a higher commensurate value. In these situations, utilizing SmartFresh to extend the marketing window is highly advantageous for the growers and packers to maximize the value of their fruit. Our fungicide and disinfectant category continues to perform well and grew 23% and was the second highest contributor to growth in the fourth quarter, with a $1.4 million increase versus the same quarter last year. Results were driven by increased citrus production in Morocco. Additionally, we experienced incremental growth in fungicide penetration in Latin America, which is supported by new commercial partnerships. Fourth quarter sales of coatings were in line with the prior year period, but this category was a strong performer on a full year basis, posting growth of 19%. Coatings is a strategic focus for the business and will become increasingly important going forward as we seek broader diversification to grow beyond palm fruits to other important market segments such as citrus and avocados. A key element of this expectation is our VitaFresh botanicals lines. which is our plant-based edible coating solution to preserve freshness, extend shelf life, reduce food loss and waste, and provide a superior eating experience. In summary, we were pleased with our fourth quarter results. We demonstrated continued strong execution of our diversification strategy with another quarter of double-digit growth. We exhibited better-than-expected performance within our SmartFresh for Apple business, and we delivered on our commitment to grow adjusted EBITDA for full year 2021. These were the key pillars of our plan for 2021 and will be our key pillars moving forward. I want to recognize our team for their continued focus to drive improved operating results across all of our solutions, categories, and geographies. We continue to make great progress developing new capabilities and have an experienced team that is well positioned to advance our growth to diversification strategy. I'll now pass the call to Graham to speak to some of the financial highlights.
spk02: Graham? Thank you, Clint. Good afternoon to everyone. The fourth quarter completes our North Hemisphere season. Net sales for the fourth quarter of 2021 increased 7.8% to $55.9 million. compared to $51.9 million in the fourth quarter of 2020. Excluding the impact of foreign currency exchange, revenue increased 10%. As Clint mentioned, the net sales increase was primarily driven by our product portfolio of diverse solutions. SmartFresh for Apple experienced the growth in Southern Europe, due to favorable late season weather supported by our strong market position and a superior service offering, which was partially offset by lower volume in North America due to extreme heat. Market expansion drove strong diversification growth in our other one MCP and the fungicides and disinfectants categories for the quarter. Net sales for the full year 2021 increased 5.3% to $166 million, compared to $157.6 million in a prior year. Foreign currency exchange had a negligible impact for the year. The net sales increase was primarily driven by growth in diversification sales. and a strong first half performance in the southern hemisphere, partially offset by an unprecedented heat wave that impacted apple production in the large Pacific Northwest region in the United States. Gross profit for the fourth quarter increased 3.3% to $39.4 million, compared to $38.1 million in the prior year period. Gross profit margin was 70.5% as compared to 73.5% in the prior year period. The margin variance reflects our transition to a more diversified product portfolio as diversification revenue growth outpaced growth from our Smart Flash for Apple business during the quarter. While we always strive to maximize margin, our primary focus is on generating gross profit dollar growth consistent with our growth through diversification strategy. For the full year 2021, gross profit increased 1.4% to $117 million. Research and development costs were $2.8 million in the fourth quarter of 2021, compared to $4 million in the prior year period, driven primarily by the timing of projects. For the full year 2021, R&D increased $0.6 million to $12.9 million compared to the prior year period. which was consistent with our plan to drive additional activities following the pandemic-induced constraints in 2020. Our investment in R&D provides for increased support of product diversification to expand our registrations to new crops and geographies, develop new proprietary solutions, expand our coatings offerings, and strengthen our technical services offerings in alignment with commercial expansion plans. SG&A expenses decreased 5.6% to $13.2 million in the fourth quarter of 2021, as compared to $13.9 million in the prior year period, driven by lower administrative expenses. We continue to be focused on expense discipline and thoughtful resource allocation as we steer the organization toward growth and revenue-generating activities. For the full year 2021, SG&A expenses decreased 2.3 percent to $52.6 million, which is consistent with the expectations we laid out previously. and demonstrates the attention we've brought to this important performance indicator. Fourth quarter 2021 net income was $2.2 million compared to net loss of $2.7 million in the prior year period. For the full year 2021 net loss was $6.1 million compared to net loss of $53 million in the prior year period. As a reminder, during 2020, the company recorded a $24.7 million valuation allowance in the tax provision related to the PSP investment. Adjusted EBITDA increased by $2.8 million, or 11.7%, to $26.4 million in the fourth quarter of 2021. as compared to $23.7 million in the prior year period. For the full year 2021, adjusted EBITDA increased 3.3% to $62 million compared to $60.1 million in the prior year period. The increase in adjusted EBITDA was primarily due to higher sales and the lower operating expenses compared to the prior year period. Adjusted EBITDA margin for the full year 2021 was 37.4% compared to 38.1% in the prior year period, which largely reflects the impact of product mix due to our diversification strategy. The strength of our operating cash flow continued in the fourth quarter, and the cash provided from operations was $52 million for the full year ended December 31, 2021, versus operating cash flow of $26.7 million in the prior year. Adjusting for the one-time benefit of $14.4 million of litigation proceeds this year and $4.6 million of non-recurring income in the prior year normalized operating cash flow from operations, was approximately $37.6 million for the full year 2021, an increase of approximately $15.5 million versus the normalized prior year. The increase in normalized cash flow from operations was mainly driven by two extraordinary variables. First, we realized the lower cash interest due to the comprehensive refinancing we did in 2020, where we reduced our senior secured debt by approximately one-third. And second, we achieved significant working capital improvements due to a global focus on this important element, which drove a material reduction in accounts receivables and inventories. For the full year ended December 31, 2021, capital expenditures were $4 million compared to $2.4 million in the prior year period. We continue to expect our annual capital expenditures to range from 2% to 5% of sales, consistent with our asset-light business model. From a balance sheet perspective, Cash as of December 31st, 2021 was $61.9 million, which represents growth of $11.9 million versus year-end 2020, and reflects our focus on driving operating cash flow. Total debt was $264 million, and our $25 million revolver was undrawn as of December 31st, 2021. This concludes our prepared remarks. Operator, please open the call for questions.
spk01: At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation sign will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the start keys. One moment while we poll for questions. Our first question comes from the line of Joel Jackson with BMO Capital Markets. You may proceed with your question.
spk08: Hi, good morning, everyone. I'm going to ask a few questions, maybe one by one. Did I say good morning? Good afternoon, sir. Okay, thanks for the update today. If we look at about 2022 and the drivers of growth, So you had 3% EBITDA growth in 21, you had 5% sales growth. Can you talk about where you see sales growth this year? How does SmartFresh Apple, does it hang in? Does it erode a bit? How has it been offset by growth in the other businesses? Maybe you can talk about the different buckets. And then on the earning side, what would EBITDA growth look like in the sales growth environment you described to me? And what other operating leverage can you achieve through cost optimizations or have you achieved what you want to achieve? Thanks.
spk03: Yeah, Joel. So first of all, good afternoon and good evening to you and everybody else. Thanks very much for the engagement and the question. Clearly for us in 2021, the driver of growth is our growth through diversification strategy. And as we continue to define and create visibility, it's really demonstrating the growth in all other products, platforms beyond kind of the legacy smart, fresh Apple. And so as we now have turned the page into 2022 and moving forward, we will continue to be focused on driving and further accelerating the diversification strategy growth. So that we will be unwavering that continued area and again that drives diversification across products and platforms it also drives growth across geographies and obviously growth across different crops and also different customers so we believe not only does that help fuel our growth it also continues to build a durable asset in that it creates a natural hedge against kind of known challenges that can be experienced in agriculture, not the least of which is being weathered. So that will continue to be the engine of growth moving forward. Now, I think also related to the question, what we also want to try to set the expectations and guide appropriately is while there has been understandably historical focus on the kind of industry-leading gross margin and operating margin percentages, as we drive that diversification, there is a natural evolution in the mix of the product categories and platforms, each coming with their own inherent gross margin. And so you're going to have a natural evolution of that gross margin. So we think the right way to assess our performance in that regard is looking at gross profit dollars. And as you see through the fourth quarter, the full year of 2021, both of those moved in the right direction. And we continue to expect that growth in actual dollars generated from gross profit and operating profit as we move forward. Lastly, I'll say relative to SmartFresh, for the reasons that you well know, we will continue to focus on defending our SmartFresh franchise, SmartFresh for Apple franchise. And again, as I think you saw in the results for the fourth quarter and the full year, I think tangibly we are demonstrating the resilience of our SmartFresh Apple business globally in the face of lower priced lower quality competitors as customers appreciate our direct selling model, our field-based technical expertise that we provide in support to our customers, the breadth of the portfolio, as well as other services that we bring to bear, and our ability to move more and more customers to what we call long-term contracts. And we think in our results that you see, a tangible evidence of that defending of smart, fresh in action. So we'll continue to defend that legacy base, continue to protect industry-leading margins for smart, fresh Apple while we continue to accelerate the impact of the diversification strategy.
spk08: So on gross profit dollars, the euro is a million and a half in 21. Would 22 be the goal to try to replicate that or beat it?
spk03: Again, I would say replicate, not from an absolute number, but replicate from a standpoint of generating net positive gross profit dollars that come as a result of that strategy, which is driving greater performance and uptake of the diversified products and platforms we have and continue to expand our footprint, geo-expand that footprint across other geographies, crops, and customers.
spk08: Okay. Can you elaborate a bit on some of the comments you gave on Smart Fresh Apple or Smart Fresh? You talked about how, although price went down, you got some volume gains. You talked about, I think, being able to lock in some contracts, long-term contracts, and retain some customers. So when I think about the strategy, that you're pursuing, did you, you know, the hope was that you wouldn't, well, the hope was that your service offering would win the day and, you know, get you the higher margin sales there. Have you now decided to give up our price a little bit? Meet a bit on price. So meet some of the generics on price. You've got a better service offering now with the bundle. Meet a little bit on price right now to try to get back some volume. We'll talk about what changed in long-term contracts and did I read that wrong.
spk03: Yeah, I'll just put, let me just give you some context. There's no, there's been no change in our focus. There's been no pivot or material change, right? And hopefully you see the consistency that that defend smart for sure. We believe we earn every day that industry leading premium that as you see has driven a large part of our current and historical gross margin percentage and a smart, fresh Apple, And 1MCP happens to be the most margin-dense platform that we have. We feel no need to be racing the competition and eroding value by chasing price. We believe we have a lot more levers to manage in defending that franchise than price. That is the ability to bundle other products. It's our direct selling model. It's the service level. It's strategic platforms like FreshCloud that we've discussed before. That has caused a number of our customers to sign up for longer-term contracts where there is better price transparency and security in that regard. And so these are multi-year contracts. Two, it assures us to getting all of their business. And those contracts also allow us to upsell other products in those areas. We have discussed that we have been willing to be reasonably and responsibly flexible on price, but that is to get and to gain, to gain higher volume of business or penetration, to gain longer-term contracts, so assurancy on both sides, as well as to allow other products and platforms to be upsold into those particular areas.
spk08: Again, finally... You know, if I look at where the company may go in 22 and 23 and beyond that, so, you know, you hope to expand gross margin dollars in 22. Is that growth fast enough for you? Obviously, you've got a lot of projects here, a lot of new products, a lot of things you're trying to expand out and grow diversification and keep growing gross profit. Is it fast enough for you, or do you feel that, You know, you've talked before, maybe going in and doing a small bolt-on or tuck-in or larger acquisition to try to, you know, get growth faster. And how would you assess your balance sheet capacity to do something?
spk03: Yeah, let me answer the first one. So, you know, I continually – the company has – there's a lot of juice, no pun intended, left in the fruit on the organic business to continue to leverage our global footprint effectively. our global footprint around our regulatory and technical expertise that really allows us to geo-expand to secure additional product registrations to be able to maximize the growth opportunities across the various geographies globally that we operate in. As you well know, Joel, we've been a business that historically has been more predisposed to apple and palm fruit. And hopefully you see the output of the success of the diversification strategy has a larger and larger ratio of our business coming from areas beyond the smart, fresh apple area. And so specifically to your question, we continue to expect and to be focused on continued strong growth in diversification and That strong growth and diversification, we believe, not only will generate good top-line growth, but also positive gross profit dollars to the business. And we believe there continues to be a good amount of room in that outside of acquisition to be able to, or any other kind of partnership, to be able to advance that. As it relates to inorganic growth opportunities, we've put what we believe is a strategically aligned and financially disciplined framework where we're really focusing on potential products that are either in the market or we believe, with the regulatory path being clear, will be in the market within zero to three years. And that has 60% of our focus, if you will, in being able to source opportunities in that regard. The second kind of tranche or focus area is for those unique, novel, IP-protected assets or opportunities that we believe there's a clarity to the regulatory path that will be in market anywhere between four to seven years. And then a modest portion focused on truly unique, disruptive areas of focus. But again, that is not something that the organization needs. has to do to achieve its goals, we believe there is enough substrate, enough capacity in our existing underlying organic business to continue to fuel both top and bottom line growth.
spk04: Thank you very much. Thank you, Joel.
spk01: Our next question comes from the line of Jerry Sweeney with Roth Capital. You may proceed with your question.
spk07: Good afternoon, Clint and Graham. Thanks for taking my call.
spk04: Hey, Jer.
spk07: I wanted to follow up on some of what you were talking about and maybe phrase it slightly different. Obviously, diversification is a big focus and tens of thousands of customers. What are the key focus, focal points for 2022 on diversification? You mentioned geo-expansion, registrations. what should we be looking for in terms of milestones? Maybe to give us a little bit more of a roadmap, per se.
spk03: Yeah, so the key, I'll break it down a couple different ways, Jerry. So I think the key areas, especially as we think about gross profit dollars, is really looking at the other 1MCP diversification. Clearly, that leverages our industry leadership on the OneMCP platform and continues to also leverage both our commercial and regulatory footprint globally to be continuing to pursue registrations. Again, remember, for each product application on each unique crop in each market, you need to generate unique data and get that approved through the regulatory bodies in that particular country and or jurisdiction. So, you know, in terms of what to look and expect is continued growth of that other one MCP category, which obviously includes products like Harvista that's still very much in launch mode in a number of our regions globally. And obviously within Europe, we're still under operating under emergency use permit authorization. We're working earnestly with the regulatory bodies to gain full regulatory clearance, but we continue to be encouraged over the last two seasons that the markets in Europe, especially being challenged with supply chain issues, labor issues have seen the tangible benefit of Harvista, both in helping to time the harvest, if you will, as well as manage through various labor shortages and dynamics. So other 1MCP, Harvista, Also, as you look, you've seen in 2021, but we also expect in 2022, where you look at the continued growth of our fungicides and disinfectant categories, especially as we continue to grow in the area of citrus, as well as we continue to leverage our fungicides along with existing and legacy Apple customers. And then last, but certainly not least, you know, continue to look at the growth in the areas of coatings, right? So you saw this year, full year, 19% growth in the area of coatings. We'll continue to be excited about our kind of new entrance into the coatings area with our VitaFresh botanical line. And as we believe customers will continue to be exploring and looking for plant-based, more natural solutions with respect to coatings, We feel good about the prospects for continued growth both of the coating area, but specifically on our VitaFresh botanicals line.
spk07: Gotcha. A follow-up to that answer, and I think it may have to be broken down slightly again, but, you know, so the one MCP or the other one MCP products, right, they're really registration-driven at this point. Could you or would this be a fair way of looking at it is maybe digging in and understanding you know, the addressable market that either you're in process of going through the registration or planning to register some of these products to get a better understanding of, you know, how much this, like TAM, could expand? Is that possible? Maybe not today, but if we dig in in a future period.
spk03: Yeah, and I think we could start today, right? So, one, just to clarify. I think it's critically important. This gets back to the underlying business. It gets back to the organic drivers of growth. There are a number of registrations that we have already today that we're still relatively, I would say, in early nascent and various stages of launch of commercializing those assets. So these are things that we have today that, again, we have the registration, we have the the marketing authorization, that we're in various stages of kind of early commercialization where we believe we continue to have more upside, more opportunities to penetrate. In parallel with that, it's continuing to secure net new registrations that as we sit on these calls today are in various stages of regulatory review, working to get full approval with the with the durable aspect of this asset where the regulatory path is fairly well defined because we may already have that product registered in a similar country and or market. So it's both leveraging existing products that we've secured or recently secured in the last one or two years registrations, how we grow and maximize that potential, as well as the ongoing work that we're doing to secure net new registration. So it's the combination of those two things that are continuing to fuel the organic growth. In terms of the TAM, sorry to cut you off, just to... Complete that piece. You know, I think we've also been consistent around, if we look in our, let's say, traditional or core footprint, which has largely been the kind of the palm fruit categories, we've tended to find that core market, or addressable market, somewhere in the range of 500 to 600 million. And then we have further expanded the TAM footprint to what today is either addressable market or we believe can be addressable with the right evolution of which we participate in that evolution in upwards of 1.2 and or higher billions. So it gives you a sense of how we look at the broader market opportunity for the types of solutions and services that we have.
spk07: Got it. That's super helpful. And then, I mean, just for the sake, since we're on this topic, maybe, does that $1.2 billion, that doesn't necessarily include fungicides and coatings, or that's a different market not included in that $1.2 billion?
spk03: No, it is. It is included in that. Okay, got it. Okay. Yeah. And the other piece, just for completeness and, again, for full transparency, right, it also recognizes regions today that are underserved or immature, right? So one of the great examples of that is China. So we continue to believe that for the broader post-harvest market, and therefore also for AgriFresh as a leader in post-harvest, a market like China is hugely underserved because of the lack of infrastructure, but at the same time, different from some other emerging markets or developing markets in that regard, there is strong governmental and top-down commitment and investment to be able to build up the infrastructure in a key market like China to meet the ever-growing internal demand consumption needs that China has. And we believe and we think they see the opportunities in the post-arvest space for that.
spk07: Got it. Super helpful. I appreciate it. Thank you, Clint. Thanks, Graham. Yeah.
spk01: Our last question comes from the line of Ahmed Dayal with H.C. Wainwright. You may proceed with your question.
spk06: Thank you. Hi, Clint. Hi, Graham. Thank you for taking my questions.
spk04: Thank you.
spk06: Clint, with respect to your comments around gross profit dollars, you're saying we should look for gross profit dollars to keep growing. In that context, are we entering a period where we are now potentially going to see 10 plus percent top line growth if margins are maybe going to be shrinking but gross profits are higher? Are we entering a period of some higher revenue growth?
spk03: Yes, so let me answer it this way, and I think this is also something that we want to continue to help our investors and the investment community continue to appreciate what we believe is the opportunity in the post-harvest segment, and therefore the opportunities for a company like AgriFresh. As we look at the industry set and the sector in which we play in, that post-harvest segment, based on external kind of validated data, the market is expected. And again, I'm going to put a big caveat on that, given some of the geopolitical dynamics that we're all dealing with. But the market is generally expected to grow at a fairly steady kind of maybe, let's say, 3%. on the low end to maybe 6% on the high end. We also want to recognize that, again, similar to the comment I was sharing with Jerry, that we also have to take into account where some of that growth is going to be higher than the average is going to be in kind of emerging and developing markets that continue to have benefits of population growth, GDP growth, desire for consumption of more fresh fruit and produce, but recognize they lack the internal infrastructure to be able to really preserve the fresh fruit and produce. All of those are opportunities for us because we're a leader in the post-harvest segment. We have a global footprint. We have teams already in these markets in every major kind of growing region to be able not only to capitalize on that trend, but be able to help accelerate and facilitate that. So we think about the marketplace in terms of the size of TAM, as I defined previously, but also we believe that market is going to continue to grow at a range of 3% to 6%. for the foreseeable future, caveated against geopolitical dynamics, inflationary debt, all the things that all of you are working through. But again, I think it's important for the investment community. To me, the trends that underpin this industry are both non-debatable, they're undeniable, and they're durable because they're supported by population growth, they're benefiting from growth of the middle class and emerging middle class and discretionary income, the less arable land for farming, less resources like water, the impact of climate, the desire to have more of that diet being taken from fresh fruit and produce. Oh, and by the way, we launched our ESG report in parallel with our fourth quarter and four-year earnings. And again, ESG, especially in the recognition of the impact of climate, the impact on food waste, has gone from, hey, that's a nice to know to a major recognized theme where AgriFresh, that's our core business. That's our mission. So when I think about it, when we think about it, we look at the market in which we operate is going to continue to grow. It's also durable for those reasons. And then the question is, AgriFresh is positioned in that market already as a leader, as a global footprint, recognizing what drives success and impact, which is having the direct customer relationships, the breadth of a portfolio, the technical and regulatory expertise, both to support our customers and to generate the data for net new registrations. And we believe that is a compelling and investable story.
spk06: Thank you for that, Grant. Graham, maybe for you on the operating cost side, are we looking at some level of stability from 2021 levels for 2022? I know maybe we account for some inflation on that front, but generally, are there any other expenses maybe related to SG&A, et cetera, that might come into play for the year?
spk02: Yeah, I think you have the right thinking. And as you may have recognized that the company, particularly over the last few years, have gone a long way in terms of optimizing, streamlining our operations. And so today, we would like to say that the company is, in terms of operation performance, is solid. So we've reached a good, steady state in terms of our capabilities and actually you remember early this year, we also boosted our capabilities in a variety of areas and commercial R&D and BD as well, marketing. So I think we are at the good steady state operation. Of course, there are opportunities to continue to improve and optimize, but our goal is to drive consistent top line as well as a bottom line growth. So overall, I think we're in a good state.
spk06: Okay, thank you, Graham. Maybe last one for you, Clint. FreshCloud, any update on that? How is it being received by customers where they're using it and what your plans are to keep sort of deploying this in the market?
spk03: Yeah, thank you very much for the question. We continue to feel very encouraged about the progress that FreshCloud is making. And again, to remind, we're still in a fairly nascent and early stage. However, we have been, I think, responsibly public, if you will, with different and a number of key large projects regional and or global customers that have chosen to adopt some aspects, some offering within the FreshCloud platform in their business. So we've talked about externally Star Ranch growers. We just recently, in the last couple of weeks, announced Westphalia. had adopted the platform. And these are major players. And what I've said, and my experience in ag tells me, customers don't pilot something. They don't adopt something, if you will, if they don't believe that it's going to provide a meaningful value add in terms of their operations. We continue to look at the agricultural sector broadly as one that is still still very early stages in its adoption of data analytics AI. And so we believe we're on the leading edge in that regard. We're encouraged by the number of kind of active pilots that we are working through, which, you know, through the end of 2021, numbers well over 30 customers that are in various active pilot stage, with a number of them that we have recently begun to announce, such as the two I just realized, that have also been able to see for themselves the value add that the platform can have, and that's encouraging to us. Remember, part of that smart, fresh Apple defend strategy is our ability to continue to keep industry leading pricing and the margin that comes from that has a lot to do with making sure that we're selling our offering and our solutions based on the value, based on the impact that it brings and not on price. Our competitors that don't have platforms like FreshCloud, they don't have the quality of our people, they may not have the breadth of the portfolio, have only one lever. in which to compete, and that is on price. And the fact that we are continuing, even in the face of that competition, to see kind of holding the volume, even in some cases slight increases in that volume, and still keeping the industry-leading pricing and margin that we have, I think is a testament of the different capabilities that we bring to bear to support that legacy SmartFresh Apple franchise, and FreshCloud is one of them.
spk02: Yeah, Amit, if I could also add, this also reflects our resources allocation to support growth areas, particularly in certain strategic areas like FreshCloud, the digital space where we believe that we are leading in this space. We've been working on this for a few years. I think it will begin where we're beginning to see the fruit of our labor and as evidenced by the signing of contracts and also building in the fresh cloud into our small fresh contracts as well. So this resource allocation is also part of our overall operating cost discipline. Yes, we are prepared to reduce costs where needed, and also reallocating costs to support growth areas. As you see in our published financials this afternoon, our SG&A overall and R&D, we continue to support R&D. In the SG&A area, I can say that we are actually intentionally looking for opportunities of cost efficiency in administration, while reallocating costs to sales, marketing, growth areas like a fresh cloud in geographic areas and also crop, other crops area that we want to expand with the new labels.
spk06: Understood. That's all I have, guys. Thank you for all the answers. Thank you.
spk04: Thank you.
spk03: Operator, any more questions?
spk01: There are no further questions at this time. I'd like to turn it back over to you for closing remarks.
spk03: Well, operator, thank you very, very much. And to those that have participated on call, Thank you very much for making the time, for your engagement, and your interest in our company. Thank you very much.
spk01: Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines at this time.
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