NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
AgroFresh Solutions, Inc. (the “Company”) is a global leader in delivering innovative food preservation and waste prevention solutions for fresh produce. The Company is empowering the food industry with a range of integrated solutions designed to help growers, packers and retailers improve produce freshness and quality while preventing waste. The Company has an extensive portfolio of solutions to extend freshness across the produce supply chain from near-harvest up to the point-of-sale. These include HarvistaTM for near-harvest optimization and the SmartFreshTM Quality System, the Company's flagship post-harvest freshness solution. Additional post-harvest freshness solutions include fungicides that can be applied to meet various customer operational requirements in both foggable (ActiMist™) and liquid (ActiSeal™) delivery options. The Company has a controlling interest in Tecnidex Fruit Protection, S.A. (“Tecnidex”), a leading regional provider of post-harvest fungicides, waxes, disinfectants and packinghouse equipment for the citrus market. Beyond apples, SmartFresh technology can provide ready-to-eat freshness for other fruits and vegetables including avocados, bananas, melons, tomatoes, broccoli and mangos. Additionally, LandSpringTM eases transplant shock for higher potential yields. RipeLock is the Company's modified atmosphere packaging technology for fruits and vegetables. The Company has key products registered in over 50 countries and supports customers with over 25,000 storage rooms globally.
The end-markets that the Company serves are seasonal and are generally aligned with the seasonal growing patterns of the Company’s customers. For those customers growing, harvesting or storing apples and pears, the Company’s core crops, the peak season in the southern hemisphere is the first and second quarters of each year, while the peak season in the northern hemisphere is the third and fourth quarters of each year. Within each half-year period (i.e., January through June for the southern hemisphere, and July through December for the northern hemisphere) the growing season has historically occurred during both quarters. A variety of factors, including weather and fruit quality, may affect the timing of the growing, harvesting and storing patterns of the Company’s customers and therefore shift consumption of the Company’s services and products between the first and second quarters primarily in the southern hemisphere or between the third and fourth quarters primarily in the northern hemisphere.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements include all adjustments that are necessary for a fair presentation of the Company's condensed consolidated results of operations, financial condition and cash flows for the periods shown, including normal, recurring accruals and other items. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. For additional information, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2019.
COVID-19
In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. For the three months ended June 30, 2020, the Company did not experience significant disruptions to operations or supply chains and results have not been materially impacted. However, there were numerous obstacles presented and some localized financial impacts of the pandemic, including the weakening of foreign currencies. While the Company is following the requirements of governmental authorities and taking additional preventative and protective measures to ensure the safety of its workforce, including implementing remote working arrangements and varying procedures for essential workforce, the Company cannot be certain there will not be any incidents across its global operations that may cause service interruptions. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak, although the Company operates in an industry that thus far has not been as severely impacted as others. Nevertheless, the outbreak presents some uncertainty and risk with respect to the Company and its performance and financial results.
Adoption of Highly Inflationary Accounting in Argentina
GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation rate exceeds 100 percent. The Company closely monitors the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation rate in that country exceeded
100 percent as of June 30, 2018. As a result, the Company adopted highly inflationary accounting as of July 1, 2018 for its subsidiary in Argentina. Under highly inflationary accounting, the functional currency of the Company's subsidiary in Argentina became the U.S. dollar, and its income statement and balance sheet are measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on Argentine peso-denominated monetary assets and liabilities are reflected in earnings. As the three-year cumulative inflation rate exceeded 100 percent as of June 30, 2020, there is no change to highly inflationary accounting. As of June 30, 2020, the Company’s subsidiary in Argentina had a net asset position of $3.9 million. Net sales attributable to Argentina were approximately 11% of the Company’s consolidated net sales for each of the six months ended June 30, 2020 and 2019.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographic region, product and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revenues for the three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific (4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$
|
1,581
|
|
$
|
2,997
|
|
$
|
5,790
|
|
$
|
5,558
|
|
$
|
15,926
|
|
|
Fungicides, waxes, coatings and disinfectants
|
—
|
|
2,766
|
|
581
|
|
—
|
|
3,347
|
|
|
Other*
|
90
|
|
146
|
|
373
|
|
100
|
|
709
|
|
|
|
$
|
1,671
|
|
$
|
5,909
|
|
$
|
6,744
|
|
$
|
5,658
|
|
$
|
19,982
|
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
1,579
|
|
$
|
5,763
|
|
$
|
6,479
|
|
$
|
5,558
|
|
$
|
19,379
|
|
|
Services transferred over time
|
92
|
|
146
|
|
265
|
|
100
|
|
603
|
|
|
|
$
|
1,671
|
|
$
|
5,909
|
|
$
|
6,744
|
|
$
|
5,658
|
|
$
|
19,982
|
|
Revenues for the three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific (4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$
|
1,191
|
|
$
|
3,412
|
|
$
|
6,385
|
|
$
|
5,300
|
|
$
|
16,288
|
|
|
Fungicides, waxes, coatings and disinfectants
|
—
|
|
3,621
|
|
695
|
|
—
|
|
4,316
|
|
|
Other*
|
177
|
|
224
|
|
103
|
|
75
|
|
579
|
|
|
|
$
|
1,368
|
|
$
|
7,257
|
|
$
|
7,183
|
|
$
|
5,375
|
|
$
|
21,183
|
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
1,286
|
|
$
|
7,062
|
|
$
|
7,140
|
|
$
|
5,314
|
|
$
|
20,802
|
|
|
Services transferred over time
|
82
|
|
195
|
|
43
|
|
61
|
|
381
|
|
|
|
$
|
1,368
|
|
$
|
7,257
|
|
$
|
7,183
|
|
$
|
5,375
|
|
$
|
21,183
|
|
Revenues for the six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific (4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$
|
2,142
|
|
$
|
8,317
|
|
$
|
22,372
|
|
$
|
10,373
|
|
$
|
43,204
|
|
|
Fungicides, waxes, coatings and disinfectants
|
—
|
|
6,639
|
|
1,175
|
|
—
|
|
7,814
|
|
|
Other*
|
532
|
|
585
|
|
728
|
|
142
|
|
1,987
|
|
|
|
$
|
2,674
|
|
$
|
15,541
|
|
$
|
24,275
|
|
$
|
10,515
|
|
$
|
53,005
|
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
2,160
|
|
$
|
14,966
|
|
$
|
23,918
|
|
$
|
10,373
|
|
$
|
51,417
|
|
|
Services transferred over time
|
514
|
|
575
|
|
357
|
|
142
|
|
1,588
|
|
|
|
$
|
2,674
|
|
$
|
15,541
|
|
$
|
24,275
|
|
$
|
10,515
|
|
$
|
53,005
|
|
Revenues for the six months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific (4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$
|
3,358
|
|
$
|
9,587
|
|
$
|
25,824
|
|
$
|
9,620
|
|
$
|
48,389
|
|
|
Fungicides, waxes, coatings and disinfectants
|
—
|
|
8,508
|
|
1,260
|
|
—
|
|
9,768
|
|
|
Other*
|
735
|
|
842
|
|
273
|
|
116
|
|
1,966
|
|
|
|
$
|
4,093
|
|
$
|
18,937
|
|
$
|
27,357
|
|
$
|
9,736
|
|
$
|
60,123
|
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$
|
3,576
|
|
$
|
18,136
|
|
$
|
27,284
|
|
$
|
9,642
|
|
$
|
58,638
|
|
|
Services transferred over time
|
517
|
|
801
|
|
73
|
|
94
|
|
1,485
|
|
|
|
$
|
4,093
|
|
$
|
18,937
|
|
$
|
27,357
|
|
$
|
9,736
|
|
$
|
60,123
|
|
*Other includes FreshCloud, technical services and sales-type leases related to Tecnidex.
———————————————————————————————————
(1) North America includes the United States and Canada.
(2) EMEA includes Europe, the Middle East and Africa.
(3) Latin America includes Argentina, Brazil, Chile, Costa Rica, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Peru and Uruguay.
(4) Asia Pacific includes Australia, China, India, Japan, New Zealand, the Philippines, South Korea, Taiwan and Thailand.
Contract Assets and Liabilities
ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer. The following table presents changes in the Company’s contract assets and liabilities during the six months ended June 30, 2020 and the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at
January 1, 2020
|
Additions
|
Deductions
|
Balance at
June 30, 2020
|
|
Contract assets:
|
|
|
|
|
|
Unbilled revenue
|
$
|
1,666
|
|
4,090
|
|
(3,976)
|
|
$
|
1,780
|
|
|
Contract liabilities:
|
|
|
|
|
|
Deferred revenue
|
$
|
1,175
|
|
3,164
|
|
(3,466)
|
|
$
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at
January 1, 2019
|
Additions
|
Deductions
|
Balance at
December 31, 2019
|
|
Contract assets:
|
|
|
|
|
|
Unbilled revenue
|
$
|
1,956
|
|
10,029
|
|
(10,319)
|
|
$
|
1,666
|
|
|
Contract liabilities:
|
|
|
|
|
|
Deferred revenue
|
$
|
1,280
|
|
3,032
|
|
(3,137)
|
|
$
|
1,175
|
|
The Company recognizes contract assets in the form of unbilled revenue in instances where services are performed by the Company but not billed by period end. The Company recognizes contract liabilities in the form of deferred revenue in instances where a customer pays in advance for future services to be performed by the Company. The Company generally receives payments from its customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the six months ended June 30, 2020. Amounts reclassified from unbilled revenue to accounts receivable for the six months ended June 30, 2020 and for the year ended December 31, 2019 were $4.0 million and $10.3 million, respectively. Amounts reclassified from deferred revenue to revenue for the six months ended June 30, 2020 and for the year ended December 31, 2019 were $3.5 million and $3.1 million, respectively.
Recently Issued Accounting Standards and Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-04, "Intangibles - Goodwill and Other", which simplifies the test for goodwill impairment. The guidance was effective for the Company beginning in the first quarter of fiscal year 2020. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the condensed consolidated financial statements of the Company.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”, which introduces a new
current expense credit loss model to measure impairment on certain types of financial instruments. This update requires an entity to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. In addition, the FASB issued various amendments during 2018 and 2019 to clarify the provisions of ASU 2016-13. The standard was effective for fiscal years beginning January 1, 2020, including interim periods. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the financial statements of the Company.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add
certain disclosure requirements related to fair value measurements covered in Topic 820. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the notes to condensed consolidated financial statements of the Company.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company is currently evaluating the impact of adopting this guidance.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate
reform on financial reporting. The new standard is effective on a date selected by the Company between March 12, 2020 and December 31, 2022. The Company is currently evaluating the impact of adopting this guidance.
3. Business Combinations and Asset Acquisition
Business Combination with Dow
On July 31, 2015 (the "Closing Date"), the Company consummated a business combination (the “Business Combination”) pursuant to the Stock Purchase Agreement, dated April 30, 2015 (the “Purchase Agreement”), by and between the Company and The Dow Chemical Company ("Dow") providing for the acquisition by the Company of the AgroFresh business from Dow, resulting in AgroFresh Inc. becoming a wholly-owned, indirect subsidiary of the Company. Pursuant to the Purchase Agreement, the Company paid the following consideration to Rohm and Haas Company (“R&H”), a subsidiary of Dow: (i) 17.5 million shares of common stock and (ii) $635 million in cash.
Pursuant to a Tax Receivables Agreement among the Company, Dow, R&H and AgroFresh Inc. entered into in connection with the consummation of the Business Combination, as amended on April 4, 2017 (as so amended, the “Tax Receivables Agreement”), the Company was required to pay to Dow 50% of the annual tax savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realized as a result of the increase in tax basis of the AgroFresh assets resulting from a Section 338(h)(10) election that the Company and Dow made in connection with the Business Combination. In December 2019, the Tax Receivables Agreement was terminated, and the Company paid to Dow an aggregate of $16 million in settlement of all past and estimated future liabilities that would have been owed under the Tax Receivables Agreement. Based on this termination, the Company recorded a reduction of liabilities of $27.9 million. This reduction, net of deferred income taxes of $5.9 million, has been recorded to additional paid-in capital since the Tax Receivable Agreement was with a related party and is treated as a capital transaction.
Acquisition of Tecnidex
On November 7, 2017, the Company entered into a definitive agreement to acquire a controlling interest in Tecnidex. The transaction was closed on December 1, 2017. Tecnidex is a leading regional provider of post-harvest fungicides, waxes, coatings, and disinfectants for the citrus market, with clients in 18 countries. For over 35 years, Tecnidex has been helping fruit and vegetable producers offer clean, safe and high-quality products to their regional clients. The acquisition was accounted for as a purchase in accordance with ASC 805, Business Combination.
At the effective date of the acquisition, the Company agreed to pay holders of Tecnidex an estimated $25.0 million in cash for 75% of the outstanding capital stock, of which $20.0 million was paid on December 1, 2017. In 2018, the purchase price was finalized as $22.3 million after giving effect to working capital, net debt and other adjustments. The remaining $2.3 million was paid during 2018.
In accordance with the acquisition method of accounting, the Company has allocated the purchase price to the estimated fair values of the identifiable assets acquired and liabilities assumed, with any excess allocated to goodwill. The preliminary assessment of fair value of the contingent consideration payments on the acquisition date was approximately $0.7 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. During the year ended December 31, 2019 there was a final adjustment made to consideration payable to holders of Tecnidex which resulted in a fair value adjustment of $0.4 million.
4. Related Party Transactions
The Company is a party to an ongoing transition services agreement with Dow, a related party. The Company incurred expenses for such transition services for the six months ended June 30, 2020 and 2019 of $0.04 million and $0.03 million, respectively. There were no outstanding amounts payable as of June 30, 2020 and 2019.
On June 13, 2020, in connection with the execution of the Investment Agreement (as defined in Note 15- Stockholders’ Equity), the Company, PSP AGFS Holdings, L.P. (the “Investor”) and R&H entered into a side agreement, pursuant to which the parties agreed that if the Investor or its affiliates has the right to designate at least 50% of the total directors on the Company’s board of directors pursuant to the Investment Agreement, so long as R&H or its affiliates beneficially owns at least 20% of the Company’s outstanding common stock (on a fully diluted, “as converted” basis), the Company and the board of directors will increase the size of the board of directors by one member and the board will elect a designee selected by R&H to fill the newly-created vacancy.
Such right is in addition to any right that R&H has to appoint a member of the board pursuant to its ownership of the Company’s Series A preferred stock (see Note 15- Stockholders’ Equity).
Refer to Note 3 - Business Combinations and Asset Acquisition regarding the contingent consideration owed to Dow as part of the Business Combination, as well as certain other agreements entered into in connection with the Business Combination, including the termination of the Tax Receivables Agreement in 2019.
During 2016, the Company made a minority investment in RipeLocker, LLC ("RipeLocker"), a company led by George Lobisser, a director of the Company. In February 2019, the Company made a further minority investment in RipeLocker. For the six months ended June 30, 2020, there were no material amounts paid and as of June 30, 2020, there were no material amounts owed to RipeLocker or Mr. Lobisser.
5. Inventories
Inventories at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Raw material
|
$
|
2,969
|
|
$
|
3,401
|
|
|
Work-in-process
|
7,616
|
|
7,278
|
|
|
Finished goods
|
13,310
|
|
10,974
|
|
|
Supplies
|
1,224
|
|
968
|
|
|
Total inventories
|
$
|
25,119
|
|
$
|
22,621
|
|
6. Other Current Assets
The Company's other current assets at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
VAT receivable
|
$
|
7,358
|
|
$
|
4,925
|
|
|
Prepaid income tax asset
|
6,222
|
|
3,616
|
|
|
Prepaid and other current assets
|
3,160
|
|
3,261
|
|
|
Total other current assets
|
$
|
16,740
|
|
$
|
11,802
|
|
7. Property and Equipment
Property and equipment at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for useful life data)
|
Useful life
(years)
|
June 30, 2020
|
December 31, 2019
|
|
Buildings and leasehold improvements
|
7-20
|
$
|
6,839
|
|
$
|
6,508
|
|
|
Machinery & equipment
|
1-12
|
11,014
|
|
10,954
|
|
|
Furniture
|
1-12
|
2,889
|
|
2,681
|
|
|
Construction in progress
|
|
1,251
|
|
902
|
|
|
|
|
21,993
|
|
21,045
|
|
|
Less: accumulated depreciation
|
|
(9,103)
|
|
(7,868)
|
|
|
Total property and equipment, net
|
|
$
|
12,890
|
|
$
|
13,177
|
|
Depreciation expense was $0.6 million and $0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $1.3 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively. Depreciation expense is recorded in cost of sales, selling, general and administrative expense and research and development expense in the condensed consolidated statements of operations.
8. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2020 and the year ended December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Beginning balance
|
$
|
6,323
|
|
$
|
6,670
|
|
Foreign currency translation
|
28
|
|
(347)
|
|
|
Ending balance
|
$
|
6,351
|
|
$
|
6,323
|
|
The Company’s intangible assets at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
(in thousands)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Impairment
|
Net
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Impairment
|
Net
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
Developed technology
|
$
|
757,866
|
|
$
|
(225,134)
|
|
$
|
—
|
|
$
|
532,732
|
|
$
|
758,760
|
|
$
|
(206,998)
|
|
$
|
—
|
|
$
|
551,762
|
|
|
In-process research and development
|
39,000
|
|
(8,306)
|
|
—
|
|
30,694
|
|
39,000
|
|
(7,222)
|
|
—
|
|
31,778
|
|
|
Trade name
|
27,011
|
|
—
|
|
—
|
|
27,011
|
|
27,200
|
|
—
|
|
|
27,200
|
|
|
Service provider network
|
2,000
|
|
—
|
|
—
|
|
2,000
|
|
2,000
|
|
—
|
|
—
|
|
2,000
|
|
|
Customer relationships
|
18,153
|
|
(3,109)
|
|
—
|
|
15,044
|
|
18,058
|
|
(2,993)
|
|
—
|
|
15,065
|
|
|
Software
|
9,757
|
|
(7,726)
|
|
—
|
|
2,031
|
|
9,861
|
|
(5,347)
|
|
(992)
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
100
|
|
(67)
|
|
—
|
|
33
|
|
100
|
|
(58)
|
|
—
|
|
42
|
|
|
Total intangible assets
|
$
|
853,887
|
|
$
|
(244,342)
|
|
$
|
—
|
|
$
|
609,545
|
|
$
|
854,979
|
|
$
|
(222,618)
|
|
$
|
(992)
|
|
$
|
631,369
|
|
During 2019, the Company recognized an impairment charge of $1.0 million associated with Verigo software following a partnership agreement with a new technology provider. During the Company's annual impairment testing conducted for the year ended December 31, 2019, the Company accelerated the amortization of Ripelock developed technology based on the Company's remaining expected useful life of the technology. This resulted in an increase to amortization expense of $34.0 million.
At June 30, 2020, the weighted-average amortization periods remaining for developed technology, in-process R&D, customer relationships, software and other was 15.0, 14.3, 12.4, 1.1, and 2.0 years, respectively, and the weighted-average amortization period remaining for these finite-lived intangible assets was 14.8 years.
Estimated annual amortization expense for finite-lived intangible assets subsequent to June 30, 2020 is as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
Amount
|
|
2020 (remaining)
|
$
|
21,665
|
|
|
2021
|
41,649
|
|
|
2022
|
40,820
|
|
|
2023
|
40,720
|
|
|
2024
|
40,720
|
|
|
Thereafter
|
394,960
|
|
|
Total
|
$
|
580,534
|
|
Amortization expense for intangible assets was $10.9 million and $11.8 million for the three months ended June 30, 2020 and 2019, respectively, and $21.9 million and $23.4 million for the six months ended June 30, 2020 and 2019, respectively.
9. Other Assets
The Company’s other assets at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Right-of-use asset
|
$
|
6,506
|
|
$
|
6,599
|
|
|
Long term sales-type lease receivable
|
2,116
|
|
2,501
|
|
|
Other long term receivable
|
3,569
|
|
3,061
|
|
|
Total other assets
|
$
|
12,191
|
|
$
|
12,161
|
|
10. Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Accrued compensation and benefits
|
$
|
6,215
|
|
$
|
7,307
|
|
|
Accrued taxes
|
4,038
|
|
3,017
|
|
|
Lease liability
|
1,565
|
|
1,493
|
|
|
Accrued rebates payable
|
616
|
|
1,377
|
|
|
Insurance premium financing payable
|
—
|
|
1,000
|
|
|
Severance
|
55
|
|
444
|
|
|
Deferred revenue
|
873
|
|
1,175
|
|
|
Accrued interest
|
84
|
|
71
|
|
|
Interest rate swap
|
579
|
|
—
|
|
|
Other
|
5,435
|
|
8,466
|
|
|
Total accrued and other current liabilities
|
$
|
19,460
|
|
$
|
24,350
|
|
Other current liabilities include primarily professional services, litigation and research and development accruals.
11. Debt
The Company’s debt, net of unamortized deferred issuance costs, at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Total Term Loan outstanding
|
$
|
403,750
|
|
$
|
405,875
|
|
|
Unamortized deferred issuance costs
|
(2,700)
|
|
(3,886)
|
|
|
Tecnidex loan outstanding
|
1,624
|
|
750
|
|
|
Less: Amounts due within one year
|
4,776
|
|
4,675
|
|
|
Total long-term debt due after one year
|
$
|
397,898
|
|
$
|
398,064
|
|
On March 23, 2020, Tecnidex entered into a €1.0 million loan agreement with Banco Santander, S.A., which provides funding through March 2023 at a 1.5% interest rate.
At June 30, 2020, the Company evaluated the amount recorded under the Term Loan (defined below) and determined that the fair value was approximately $391.6 million. The fair value of the debt is based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
The Term Loan is presented net of deferred issuance costs, which are amortized using the effective interest method over the term of the Term Loan. Gross deferred issuance costs at the inception of the Term Loan were $12.9 million and as of June 30, 2020 there were $2.7 million of unamortized deferred issuance costs.
Scheduled principal repayments of debt subsequent to June 30, 2020 are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
Amount
|
|
2020 (remaining)
|
$
|
2,431
|
|
|
2021
|
402,171
|
|
|
2022
|
507
|
|
|
2023
|
265
|
|
|
Total
|
$
|
405,374
|
|
Credit Facility
On July 31, 2015, in connection with the consummation of the Business Combination, AgroFresh Inc. as the borrower and its parent, AF Solutions Holdings LLC (“AF Solutions Holdings”), a wholly-owned subsidiary of the Company, as the guarantor, entered into a Credit Agreement with Bank of Montreal, as administrative agent (as subsequently amended, the “Credit Facility”). The Credit Facility consists of a $425.0 million term loan (the “Term Loan”), with an amortization equal to 1.00% per year, and a revolving loan facility (the “Revolving Loan”). On January 31, 2019, the Revolving Loan was amended to reduce the total availability from $25.0 million to $12.5 million, to extend the maturity date from July 31, 2019 to December 31, 2020, and to amend certain financial covenants. On December 23, 2019, the Revolving Loan was further amended to extend the maturity date from December 31, 2020 to April 1, 2021 and to amend one of the financial covenants.
The Revolving Loan includes a $10.0 million letter-of-credit sub-facility, issuances against which reduce the available capacity for borrowing. As of June 30, 2020, the Company had issued $0.03 million of letters of credit, against which no funds have been drawn. The Term Loan has a scheduled maturity date of July 31, 2021. The interest rates on borrowings under the facilities are either the alternate base rate plus 3.75% or LIBOR plus 4.75% per annum, with a 1.00% LIBOR floor (with step-downs in respect of borrowings under the Revolving Loan dependent upon the achievement of certain financial ratios). The obligations under the Credit Facility are secured by liens on substantially all of the assets of (a) AgroFresh Inc. and its direct wholly-owned domestic subsidiaries, and (b) AF Solutions Holdings LLC, including the common stock of AgroFresh Inc.
The net proceeds of the Term Loan were used to fund a portion of the purchase price payable to Dow in connection with the Business Combination. Amounts available under the Revolving Loan may also be used for working capital, general corporate purposes, and other uses, all as more fully set forth in the Credit Agreement. At June 30, 2020, there was $403.8 million outstanding under the Term Loan and no balance outstanding under the Revolving Loan.
As of the Closing Date, the Company incurred approximately $12.9 million in debt issuance costs related to the Term Loan and $1.3 million in costs related to the Revolving Loan. The debt issuance costs associated with the Term Loan were capitalized against the principal balance of the debt, and the Revolving Loan costs were capitalized in Other Assets. All issuance costs will be accreted through interest expense for the duration of each respective debt facility. The interest expense related to the amortization of the debt issuance costs during the three months ended June 30, 2020 and 2019, was approximately $0.6 million and $0.6 million, respectively. The interest expense related to the amortization of the debt issuance costs during the six months ended June 30, 2020 and 2019 was approximately $1.2 million and $1.1 million, respectively.
Certain restrictive covenants are contained in the Credit Facility, which includes the Revolving Loan, and the Company was in compliance with these covenants as of June 30, 2020, other than covenants that apply only to the Company's ability to borrow under the Revolving Loan (excluding letters of credit).
Beginning with the year ended December 31, 2016, the Company is required to prepay Term Loan Borrowings and Incremental Term Loan Borrowings in an aggregate amount equal to 50% of the "Excess Cash Flow" (as defined in the Credit Facility) for the fiscal year; provided that such amount of the Excess Cash Flow in any fiscal year shall be reduced by (i) the aggregate amount of prepayments of Term Loans and Incremental Term Loans made, (ii) to the extent accompanied by permanent reductions of Revolving Commitments, the aggregate amount of prepayments of Revolving Loans (other than prepayments financed with the proceeds of Indebtedness), and (iii) repaid borrowings of Revolving Loans made on the Effective Date to account for any additional original issue discount or upfront fees that are implemented pursuant to the Fee Letter provided further that, prepayments of Term Loan Borrowings and Incremental Term Loan Borrowings shall only be required if 50% of the Excess Cash Flow for such fiscal year exceeds $5.0 million. There are no amounts due under this provision as of June 30, 2020.
The Credit Facility was amended and restated on July 27, 2020. Refer to Note 22 – Subsequent Events for further information.
The Company entered into an interest rate swap contract in August 2019 to hedge interest rate risk associated with the Term Loan. During the three and six months ended June 30, 2020, an unrealized gain of $0.3 million and an unrealized loss of $0.7 million was recognized, respectively, in connection with this swap. The interest rate swap contract matures on December 31, 2020.
As part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Company received a Paycheck Protection Program ("PPP") loan to offset eligible costs incurred during the period. Under the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the forgiveness period.
As of June 30, 2020, the Company has used the entire loan proceeds to fund its eligible payroll expenses and mortgage interest. As a result, the Company believes that it has met the PPP eligibility criteria for forgiveness and has concluded that the loan represents, in substance, a government grant that is expected to be forgiven. As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance”, the Company has recognized the entire loan amount as Grant Income at June 30, 2020.
The Company does not anticipate taking any action that would cause any portion of the loan to be ineligible for forgiveness. However, to the extent that any amount is deemed unforgivable, such amount is payable over two to five years at an interest rate of 1%, with a deferral of payments for the first six months.
12. Leases
The Company enters into lease agreements for certain facilities and vehicles that are primarily used in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease.
Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, uses the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.
Lease expense is primarily included in general and administrative expenses in the condensed consolidated statements of operations. Additional information regarding the Company's operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three months ended June 30, 2020
|
Three months ended June 30, 2019
|
Six months ended June 30, 2020
|
Six months ended June 30, 2019
|
|
Operating leases
|
$
|
648
|
|
$
|
657
|
|
$
|
1,254
|
|
$
|
1,258
|
|
|
Short-term leases (1)
|
89
|
|
16
|
|
176
|
|
47
|
|
|
Total lease expense
|
$
|
737
|
|
$
|
673
|
|
$
|
1,430
|
|
$
|
1,305
|
|
(1) Leases with an initial term of twelve months or less are not recorded on the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
Other information on operating leases
|
Six months ended June 30, 2020
|
Six months ended June 30, 2019
|
|
Cash payments included in operating cash flows
|
$
|
854
|
|
$
|
609
|
|
|
Right-of-use assets obtained in exchange for new lease
|
$
|
795
|
|
$
|
296
|
|
|
Weighted average discount rate
|
9.03
|
%
|
9.42
|
%
|
|
Weighted average remaining lease term in years
|
5.04
|
5.75
|
The following table presents the contractual maturities of the Company's lease liabilities as of June 30, 2020:
|
|
|
|
|
|
|
|
(in thousands)
|
Lease Liability
|
|
Remainder of 2020
|
$
|
1,115
|
|
|
2021
|
2,011
|
|
|
2022
|
1,699
|
|
|
2023
|
1,423
|
|
|
2024 and thereafter
|
2,459
|
|
|
Total undiscounted lease payments
|
8,707
|
|
|
Less: present value adjustment
|
2,007
|
|
|
Operating lease liability
|
$
|
6,700
|
|
The following table presents the contractual maturities of the Company's lease liabilities as of December 31, 2019:
|
|
|
|
|
|
|
|
(in thousands)
|
Future lease Payments
|
|
2020
|
$
|
1,939
|
|
|
2021
|
1,670
|
|
|
2022
|
1,509
|
|
|
2023
|
1,294
|
|
|
2024 and thereafter
|
2,380
|
|
|
Total undiscounted lease payments
|
8,792
|
|
|
Less: present value adjustment
|
1,960
|
|
|
Operating lease liability
|
$
|
6,832
|
|
13. Other Noncurrent Liabilities
The Company’s other noncurrent liabilities at June 30, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2020
|
December 31, 2019
|
|
Lease liability
|
$
|
5,135
|
|
$
|
5,339
|
|
|
Other (1)
|
1,430
|
|
1,907
|
|
|
Total other noncurrent liabilities
|
$
|
6,565
|
|
$
|
7,246
|
|
(1) Other noncurrent liabilities include long-term rebates and pension liabilities.
14. Severance
Severance expense was $0.1 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively, and $0.1 million and $0.7 million for the six months ended June 30, 2020 and 2019, respectively. These amounts, which do not include stock compensation expense, were recorded in selling, general and administrative expense in the condensed consolidated statements of operations. As of June 30, 2020 and December 31, 2019, the Company had a $0.1 million and $0.4 million severance liability, respectively.
15. Stockholders’ Equity
The authorized common stock of the Company consists of 400,000,000 shares with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of June 30, 2020, there were 52,213,708 shares of common stock outstanding. As of June 30, 2020, there were warrants to purchase 15,983,072 shares of the Company’s common stock outstanding at a strike price of $11.50. Of the 15,983,072 warrants, 9,823,072 were issued as part of the units sold in the Company's initial public offering in February 2014 (1,201,928 warrants were subsequently repurchased during 2015) and 6,160,000 warrants were sold in a private placement at the time of such public offering.
On June 13, 2020, the Company entered into an Investment Agreement (the “Investment Agreement”) with the Investor, an affiliate of Paine Schwartz Partners, LLC (“PSP”), pursuant to which, subject to certain closing conditions, the Investor agreed to purchase in a private placement an aggregate of $150,000,000 of convertible preferred equity of the Company. The transaction closed on July 27, 2020 and a total of 150,000 shares of the Company’s newly-designated Series B-1 Convertible Preferred Stock, par value $0.0001 per share (the “Series B-1 Preferred Stock”) were purchased in such transaction (the “Private Placement”). Following the approval of the transactions contemplated by the Investment Agreement by the necessary regulatory body, the Company will be required to issue to the Investor, for no additional consideration, a total of 150,000 shares of the Company’s newly-designated Series B-2 Convertible Preferred Stock, par value $0.0001 per share (the “Series B-2 Preferred Stock”). Shortly thereafter, all of the outstanding shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock would be exchanged for a total of 150,000 shares of the Company’s newly-designated Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock” and, together with the Series B-1 Preferred Stock, the “Preferred Stock”).
The Series B-1 Preferred Stock ranks (and, when issued, the Series B Preferred Stock will rank) senior to the shares of the Company’s common stock, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series B-1 Preferred Stock has (and, when issued, the Series B Preferred Stock will have) a liquidation preference of $1,000 per share (the “Stated Value”). Holders of the Series B-1 Preferred Stock are (and, when issued, the Series B Preferred Stock will be) entitled to a cumulative dividend at a rate of 16% per
annum, of which 50% will be payable in cash and 50% will be payable in kind until the first anniversary of the Closing Date, after which 50% will be payable in cash, 37.5% will be payable in kind, and the remaining 12.5% will be payable in cash or in kind, at the Company’s option, subject in each case to adjustment under certain circumstances. Dividends on the Series B-1 Preferred Stock are (and, when issued, the Series B Preferred Stock will be) cumulative and payable quarterly in arrears. All dividends that are paid in kind will accrete to, and increase, the Stated Value. The applicable dividend rate is subject to increase by 2% per annum during any period that the Company is in breach of certain provisions of the applicable Certificate of Designation of the Preferred Stock.
The Preferred Stock will be convertible into Common Stock at the election of the holder at any time at an initial conversion price of $5.00 (the “Conversion Price”), subject to certain limitations. The Conversion Price is subject to customary adjustments, including for stock splits and other reorganizations affecting the Common Stock and pursuant to certain anti-dilution provisions for below market issuances. Refer to Note 22 – Subsequent Events for additional information.
In December 2018, the Company filed a shelf registration statement (File No. 333-229002) (“Form S-3 Shelf”) with the Securities and Exchange Commission, that became effective in February 2019. On June 25, 2020, the Company established an at-the-market offering facility (the “ATM Facility”) under the Form S-3 Shelf, with Virtu Americas LLC, acting as sales agent with support from H.C. Wainwright & Co and Roth Capital Partners. The Company’s board of directors approved sales of up to $30,000,000 maximum aggregate offering of the Company’s common stock under the ATM Facility. There were no shares of the Company’s common stock issued under the ATM Facility through June 30, 2020.
In connection with and as a condition to the consummation of the Business Combination, the Company issued R&H one share of Series A Preferred Stock. R&H, voting as a separate class, is entitled to appoint one director to the Company’s board of directors for so long as R&H beneficially holds 10% or more of the aggregate amount of the outstanding shares of common stock and non-voting common stock of the Company. The Series A Preferred Stock has no other rights.
16. Stock-based Compensation
In July 2015, the Company adopted the 2015 Incentive Compensation Plan (as amended, the “Plan”), pursuant to which the Compensation Committee of the Company is authorized to grant up to 7,150,000 shares to officers and employees of the Company, in the form of equity-based awards, including time or performance based options and restricted stock.
In June 2019, the Company's shareholders approved the 2019 Employee Stock Purchase Plan (the "ESPP"), which was effective July 1, 2019. 500,000 shares of common stock are reserved for issuance under the ESPP. As of June 30, 2020, 253,042 shares had been issued under the ESPP.
Stock compensation expense for equity-classified and liability-classified awards was $1.0 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively. Stock compensation expense for equity-classified and liability-classified awards was $1.8 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively. Stock compensation expense is recognized in cost of goods sold, selling, general and administrative expenses and research and development expenses. At June 30, 2020, there was $5.7 million of unrecognized compensation cost relating to outstanding unvested equity instruments expected to be recognized over the weighted average period of 2.1 years.
On April 14, 2020, the Company granted the following share-based awards to members of management employed in the United States. These awards will be settled in shares of the Company's common stock and are equity-classified. The grant date fair value of the time-based award will be recognized on a straight-line basis over the vesting period. The grant date fair value of the performance-based award will be recognized on a straight-line basis over the vesting period based on the probability of achieving the performance condition. The performance-based restricted stock units each have a performance period that ends on December 31, 2022.
|
|
|
|
|
|
|
|
|
Number of shares
|
|
Time-based restricted stock
|
1,004,979
|
|
|
Performance-based restricted stock units
|
896,766
|
|
|
Total
|
1,901,745
|
|
On April 14, 2020, the Company also granted the following share-based awards to members of management employed in countries outside of the United States. These awards will be settled in cash and are liability-classified. Therefore, the fair value of these liability-classified awards will be re-measured on each balance sheet date. The performance-based phantom shares each have a performance period that ends on December 31, 2022.
|
|
|
|
|
|
|
|
|
Number of shares
|
|
Time-based phantom shares
|
163,462
|
|
|
Performance-based phantom shares
|
83,704
|
|
|
Total
|
247,166
|
|
The performance-based restricted stock units and phantom shares were valued with a Monte Carlo simulation model using the assumptions in the table below. Based on these assumptions, the grant date fair value of the performance-based restricted stock units was estimated to be $1.70 per share.
|
|
|
|
|
|
|
|
Volatility
|
65.8
|
%
|
|
Risk-free interest rate
|
0.27
|
%
|
|
Dividend yield
|
—
|
%
|
|
Grant date stock price
|
$1.65
|
|
Performance period
|
3.0 years
|
The fair value of the time-based restricted stock and the time-based phantom shares is equal to the closing price of the Company’s common stock on the grant date of the awards.
17. Earnings Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company had a loss for the three and six months ended June 30, 2020 and 2019. Therefore, the effect of stock-based awards including options, restricted stock, restricted stock units and warrants outstanding at June 30, 2020 and 2019, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive.
The following is a reconciliation of the weighted-average common shares outstanding used for the computation of basic and diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2020
|
Six Months Ended
June 30, 2019
|
|
Basic weighted-average common shares outstanding
|
50,758,273
|
|
50,146,513
|
|
50,646,522
|
|
50,094,822
|
|
|
Effect of dilutive options, performance stock units and restricted stock
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Diluted weighted-average shares outstanding
|
50,758,273
|
|
50,146,513
|
|
50,646,522
|
|
50,094,822
|
|
Securities that could potentially be dilutive are excluded from the computation of diluted (loss) income per share when a loss from continuing operations exists, when the exercise price exceeds the average closing price of the Company's common stock during the period, or for contingently issued shares, if the contingency is not met at the end of the reporting period, because their inclusion would result in an anti-dilutive effect on per share amounts.
The following represents the weighted-average number of shares that could potentially dilute basic earnings per share in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2020
|
Six Months Ended
June 30, 2019
|
|
Stock-based compensation awards(1):
|
|
|
|
|
|
Stock options
|
860,588
|
|
—
|
|
861,766
|
|
—
|
|
|
Restricted stock to non-directors
|
1,268,010
|
|
188,168
|
|
930,421
|
|
212,271
|
|
|
Restricted stock to directors
|
—
|
|
148,284
|
|
—
|
|
140,106
|
|
|
Warrants:
|
|
|
|
|
|
Private placement warrants
|
6,160,000
|
|
6,160,000
|
|
6,160,000
|
|
6,160,000
|
|
|
Public warrants
|
9,823,072
|
|
9,823,072
|
|
9,823,072
|
|
9,823,072
|
|
(1) SARs and Phantom Shares are payable in cash so will have no impact on number of shares.
Warrants and options are considered anti-dilutive and excluded when the exercise price exceeds the average market value of the Company’s common stock price during the applicable period.
18. Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign incomes taxes. The effective tax rates for the periods ended June 30, 2020 and June 30, 2019, reflect the Company’s expected tax rate on reported income (loss) from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in the U.S. and various other jurisdictions outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the Company’s earnings and the applicable tax rates in the various jurisdictions where the Company operates.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act includes tax changes and financial aid designed to protect the American people from the public health and economic impacts of COVID-19. The tax changes include allowing net operating losses to be carried back five years, suspending the 80% of taxable limitation on the use of net operating losses, an increase of the 30% of EBITDA limitation on the deduction of interest expense to 50%, and acceleration of the refund for alternative minimum tax credits granted under the 2017 Tax Cuts and Jobs Act (“TCJA”). Most significant to the Company are the modifications on the limitation of business interest deductions for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% to 50% of adjusted taxable income.
Typically, the Company has calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate for the full year "ordinary" income or loss for the respective reporting period. For the six months ended June 30, 2020, the Company has computed its provision for income taxes under the discrete method which allows the Company to calculate its tax provision based upon the actual effective tax rate for the year-to-date. The discrete method was determined to be an appropriate method for estimating its tax provision for the six months ended June 30, 2020 as it provides a reliable estimate as opposed to changes in estimated "ordinary" income or loss which would have resulted in significant fluctuations when estimating the annual effective tax rate.
The Company's effective tax rate for the three and six months ended June 30, 2020 was (3.9)% and 13.5%, respectively, compared to the effective tax rate for the three and six months ended June 30, 2019 of 22.0% and 16.4%, respectively.
The effective tax rate for the six months ended June 30, 2020 differs from the U.S. statutory tax rate of 21%, primarily because of changes in valuation allowance positions related to the United States and certain foreign jurisdictions and by foreign exchange currency gains, offset by foreign provision to return tax benefits, primarily in France.
The sale of the Series B-1 Preferred Stock (see Note 22 – Subsequent Events) triggered a change in control as defined in Sections 382 and 383 of the Internal Revenue Code. Those provisions limit the utilization of certain US tax carryforwards and net built in losses. The Company is in the process of determining the limitation and related impact on the use of its tax attributes.
19. Segment Information
The authoritative guidance for disclosures about segments of an enterprise establishes standards for reporting information about segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. We currently operate and manage our business as two operating segments. Our chief operating decision-makers allocate resources and assess performance of the business for each segment. Accordingly, we consider ourselves to have two operating and reportable segments (i) AgroFresh core and (ii) Tecnidex. AgroFresh core business is providing produce preservation and waste prevention solutions for growers and packers. Its products include SmartFresh, Harvista, RipeLock and FreshCloud. Tecnidex is a provider of fungicides, disinfectants, waxes and coatings primarily focused on the citrus market.
Our chief operating decision-makers do not evaluate operating segments using asset or liability information. The following table presents a breakdown of our revenues and gross profit based on reportable segments for the three and six months ended June 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended
June 30, 2020
|
Three Months Ended
June 30, 2019
|
Six Months Ended
June 30, 2020
|
Six Months Ended
June 30, 2019
|
|
AgroFresh Core
|
|
|
|
|
|
Revenues
|
$
|
16,738
|
|
$
|
16,867
|
|
$
|
45,380
|
|
$
|
50,355
|
|
|
Gross Profit
|
12,402
|
|
13,364
|
|
34,797
|
|
38,497
|
|
|
Tecnidex
|
|
|
|
|
|
Revenues
|
3,244
|
|
4,316
|
|
7,625
|
|
9,768
|
|
|
Gross Profit
|
1,127
|
|
1,530
|
|
3,227
|
|
4,002
|
|
|
Total Revenues
|
$
|
19,982
|
|
$
|
21,183
|
|
$
|
53,005
|
|
$
|
60,123
|
|
|
Total Gross Profit
|
$
|
13,529
|
|
$
|
14,894
|
|
$
|
38,024
|
|
$
|
42,499
|
|
20. Commitments and Contingencies
The Company is currently involved in various claims and legal actions that arise in the ordinary course of business. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. Although the results of litigation and claims can never be predicted with certainty, the Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s business, financial condition or results of operations.
On October 14, 2019, the Company was awarded a verdict of $31.1 million in damages, related to, among other things, trade secret misappropriation and willful patent infringement, in its litigation against Decco Post-Harvest, Inc. ("Decco") and Decco's parent company, UPL Limited. The award is subject to post-verdict review by the Court and any appeals that may be taken by the parties in the future.
In July 2020, three separate putative class action lawsuits were filed against the Company, each alleging that the Company’s disclosures regarding the transactions contemplated by the Investment Agreement contained in its proxy statement for the 2020 annual meeting of the Company’s stockholders were inadequate.
Purchase Commitments
The Company has various purchasing contracts for contract manufacturing and research and development services which are based on the requirements of the business. Generally, the contracts are at prices not in excess of current market prices and do not commit the business to obligations outside the normal customary terms for similar contracts.
21. Fair Value Measurements
Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the fair value of the Company’s financial instruments that are measured at fair value on a recurring basis as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Liability-classified stock compensation (1)
|
$
|
—
|
|
$
|
—
|
|
$
|
265
|
|
$
|
265
|
|
|
Interest rate swap
|
—
|
|
—
|
|
579
|
|
579
|
|
|
Total
|
$
|
—
|
|
$
|
—
|
|
$
|
844
|
|
$
|
844
|
|
The following table presents the fair value of the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Liability-classified stock compensation (1)
|
$
|
—
|
|
$
|
—
|
|
$
|
218
|
|
$
|
218
|
|
|
Interest rate swap
|
—
|
|
—
|
|
(95)
|
|
(95)
|
|
|
Total
|
$
|
—
|
|
$
|
—
|
|
$
|
123
|
|
$
|
123
|
|
(1) The fair values of phantom stock units were estimated using a Monte Carlo simulation pricing model with the assumptions described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
Grant date fair value
|
$
|
1.70
|
|
—
|
$7.28
|
|
Risk-free interest rate
|
0.27
|
%
|
—
|
2.39%
|
|
Expected life (years)
|
2.71
|
—
|
2.75
|
|
Estimated volatility factor
|
65.1
|
%
|
—
|
69.9%
|
|
Expected dividends
|
None
|
|
|
There were no transfers between Level 1 and Level 2 and no transfers out of Level 3 of the fair value hierarchy during the six months ended June 30, 2020.
At June 30, 2020, the Company evaluated the amount recorded under the Term Loan and determined that the fair value was approximately $391.6 million. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.
Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis
The following table presents the changes during the period presented in the Company's Level 3 financial instrument liabilities that are measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Liability-classified stock compensation
|
Interest rate swap
|
Total
|
|
Balance, December 31, 2019
|
$
|
218
|
|
$
|
(95)
|
|
$
|
123
|
|
|
Stock compensation activity
|
47
|
|
—
|
|
47
|
|
|
Mark-to-market adjustment
|
—
|
|
674
|
|
674
|
|
|
Balance, June 30, 2020
|
$
|
265
|
|
$
|
579
|
|
$
|
844
|
|
22. Subsequent events
On July 27, 2020, the Company completed a comprehensive refinancing by entering into an Amended and Restated Credit Agreement (the “Restated Credit Agreement”) with the other loan parties party thereto, Bank of Montreal, as administrative agent (“Administrative Agent”) and the lenders party thereto. The Restated Credit Agreement amends and restates in its entirety the Credit Agreement.
The Restated Credit Agreement provides for a $25 million revolving credit facility (the “Revolving Credit Facility”) which matures on June 30, 2024, and a $275 million term credit facility (the “Term Credit Facility” and, together with the Revolving Credit Facility, the “Restated Credit Facility”), which matures on December 31, 2024. The Restated Credit Facility includes a $5 million swingline commitment and a $10 million letter of credit sub-limit.
Loans under the Term Credit Facility bear interest at a rate equal to, at the Company’s option, either the Adjusted Eurodollar Rate for the interest period in effect for such borrowing plus an Applicable Rate of 6.25% per annum, or the Alternate Base Rate plus an Applicable Rate of 5.25% per annum. Loans under the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, the Adjusted Eurodollar Rate for the interest period in effect for such borrowing plus the Applicable Rate ranging from 6.25% to 6.00% per annum, based on certain ratios. The Company is also required to pay a commitment fee on the unused portion of the Revolving Credit Facility at a rate ranging from 0.5% to 0.375%, based on certain ratios. The Company is required to make mandatory prepayments of outstanding indebtedness under the Restated Credit Agreement under certain circumstances.
On the closing date of the Company’s Credit Agreement, the Company consummated the issuance and sale of 150,000 shares of the Company’s newly-designated Series B-1 Convertible Preferred Stock, pursuant to the terms of the Investment Agreement. See Note 15 – Stockholders’ Equity for additional information.
In connection with the consummation of the Investment Agreement, the Company and the Investor entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated as of July 27, 2020. The Registration Rights Agreement provides that the Company will use its commercially reasonable efforts to prepare and file a shelf registration statement with the SEC and to use its commercially reasonable efforts to cause such shelf registration statement to be declared effective as promptly as is reasonably practicable after its filing to permit the public resale of registrable securities covered by the Registration Rights Agreement.
In July 2020, AgroFresh Spain, S.L.U. entered into a €0.6 million loan agreement with Banco Santander, S.A., which provides funding through July 2025 at a 2.5% interest rate.