Q4 2019 Earnings Call
Good afternoon, and welcome to the real fresh solutions fourth quarter and full year 2019 conference call all participants will be in listen only mode.
Today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded.
This time I'd like turn the conference call or really just Sonic Investor Relations I see our.
Please go ahead.
Thank you.
Today's presentation will be led by George If Wright, Chief Executive Officer, and Grand mile Chief Financial Officer.
Comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act 1995, all statements other than statements of historical facts are considered forward looking statements. These statements are based on management's current expectations.
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 forward looking statements.
These risks and uncertainties are identified in disgust in the company's filings with the S. You see.
We'll also refer to certain non-GAAP financial measures. Please refer to the tables included in the slides that accompany this presentation as well as the press release, which can be found in the Investor <unk> Best Relations section of our website egg refresh dot com reconciliations of non-GAAP financial measures to their most directly comparable GAAP.
GAAP measures.
Now I'd like to turn the call over to Jordi forever.
Thank you, Jeff and good afternoon, everyone.
Please turn to slide three.
We're pleased with 2019 financial performance in spite of adverse weather events that affected our business in European Eastern North American markets.
Our resilience comps from a global geographic reach extensive registration portfolio and unique service oriented platform.
During 2019, we experienced positive trends in our core Smartfresh business in key markets that were previously disrupted by competitive entrants, which speaks to the volume I refresh rise reputation and I'm not sure.
We continue to leverage our global reach diversify sales of products, such as harvista into new crops and geography.
And grow existing platforms, such as technics.
Innovation remains an important element of our culture and we are encouraged by the plan future in production or some novel technologies that we believe will support a long term diversification efforts.
Our continuous cost optimization efforts translated into a 10% reduction in selling general and administrative expenses well for your 2019.
The efficiencies we've created a driving financial improvements and we are pleased with the Libra hundred 60 basis point of adjusted EBITDA margin expansion for your 2019, despite facing weather related obstacles and on favorable currency trends, which tempered topline reserve.
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As a reminder, we experienced the late harvest the northern hemisphere. She's in this past fall due to weather irregularities that extended to harvest into October and November in 2019.
Shifting sales from September to October course over to become the largest revenue month of the year, which is an anomaly <unk>.
Gosh, the fourth quarter comparisons do not recapture the reality is over normal season.
Turning to slide four.
Smartfresh is a resilient business that is supported by a global registration portfolio service oriented platform and global footprint.
During the northern Hemisphere season, we experienced positive trends you know core smartfresh business in the Pacific Northwest, which was previously disrupted by competitive entrants.
I believe that our ability to recapture share while pricing at a premium to competition in this geography speaks to the value of the Agra first Brian in the marketplace.
Yes, the must understand the unique combination a value on service that we offer which is backed by decades old expertise to help our customers MCSI My you back out and profitability.
In terms of the fourth quarter drivers for Smartfresh beyond the harvest timing shift bullish industry expectations for a large north American season, where moderated by the negative impact from an early Frost <unk> D. N O October in the Pacific Northwest and challenges in the east growing regions in the United States in Canada.
You too extreme weather events, including hail and I, we brought about by Hurricane Dorian.
European growing regions phase weather, driven headwinds as well the pair crops, Italy, and the Netherlands were negatively impacted by a variety of variables, including weather and work comparatively small one versus the prior year.
Finally, I comment on our active mispriced, which enhances our smartfresh Lucius prep.
I mean, she's a proper Terry Fogging fungicide system.
Which offers we find logistics and improved fog in performance.
I see me, it's complementary Smartfresh service platform by adding disease control to Smartfresh ethylene blocking program.
I can be sales grew 37% in 2019 and he is a focus for us in 2020, we expect continued growth as we offer additional active ingredients and expand into other markets.
Turning to slide five.
We continue to make progress towards the goal of diversifying our core business to a broader crop I'm product base.
In 2019, Harvista returned to growth with new regulatory approvals in crops to be on apples as well as new geographies such as Australia.
I'll take me VIX product line, so double digit growth in Latin American markets offset by a weaker crop immoral go into second half of the you.
Your 2019, Salesforce Apple crops as a percentage of total revenue was 72% compared to 70% for full year 2018.
The higher mix of Apple revenue versus the prior year was largely due to weaker pair crops <unk> Europe as well as the reset about Ripelock program, which was previously focused on bananas.
We have created the specific crop diversification team the focus just on new crop outside apples and see troops in a mandate to drive greater penetration within key markets, such as California and Mexico.
Innovation remains an important element of our culture and we are working on introducing novelty acknowledges analytics that will support a long term diversification efforts, while delivering value to of course.
Our expanding regulatory portfolio is the primary driver for growing up business be on apples and we are continually leveraging our expertise to address new markets and new crops, such as mangoes Eminem.
The most prominent regulatory approval, we have received since our last update is for Harvista in Brazil.
This game earlier than expected as the local Apple industry lobbied do authorities to accelerate the process.
We estimate the Brazil's potential for Harvista is approximately 23000 hectares, which is similar to markets such as Canada in Chile.
Other recent noteworthy approvals are uses extension smartfresh prototypes in Italy, and Spain for Peaches, nectar, India Africa as well as at the walks the shoes for Ornamentals in France equal.
In the past two years and through the acquisition of Technetics. We have also expanded a regulatory know how do other post harvest Scott product categories, such as fungicides and have recently obtained approval for the active ingredient pretty methanol in markets such as Argentina injuries.
Please turn to slide six.
Harvest that helps slow restoration and the ripening process.
Wow apples and pears still on the tree promoting for Fred firmness in quality for an extended period.
It also provides all the significant benefits such as you enhancement for other high volume crops, such as chairs and blueberries, which we have started to address in the U.S. in Chile. Following recent regulatory approvals in those countries.
For full year 2019, or at least the sales grew 11% compared to full year 2018 with growth across the regions, including North America, Australia, Latin America, and South Africa.
Well, we achieved double digit growth Harvista performance would have been even better because they have not been severe weather events in the eastern United States in Canada, where gruel, so substantial crop damages from Yale and Hurricane wins.
We believe Harvista is boys were strong you're in 2020 and at the longer term growth potential carby stuff will be driven by the timing of new regulatory approach.
Good example of this is the approval in Australia, which drove new revenue during the 2019 southern hemisphere season.
We received good news is generally from the Brazilian authorities about the approval for use in that country and looking ahead, we are targeting regulatory approvals in key markets, such as New Zealand and the European Union, where the brabec has generated a lot of interest after promising customer trials.
A regulatory strategy goes beyond regional exposure and also helps drive or diversification strategy.
Driving the implementation of the harvested technology beyond apples and pears, two other high volume crops, such as blueberries in Chile and chairs in United States are great. Examples of these we are pursuing approval for blueberries in United States into 2020 season.
Uh huh.
Turning to slide seven.
We acquired picked index in December 2017 to penetrate the post harvest it was business, providing I'd refresh with crop and technology diversification being established portfolio a phone besides coatings and waxes.
We estimate that citrus represents approximately 60% of the total global post harvest market and remains a significant growth opportunity for AG refresh.
Let me dig sales decreased 4.7% for full year 2019, but were flat on a constant currency basis.
We saw strong growth of 61% in Latin America for the full year, which was offset by a poor seasonally in the middle Eastern Africa, which was down 25% versus the prior year.
Our largest market more local had a particularly difficult year with low yields the were brought about by poor treat conditions and drop in certain regions.
We are optimistic techniques will return to growth in 2020, as we have continued to invest in additional resources to support our service oriented approach in markets, such as Chile, Argentina, Brazil, Turkey, U.S. and South Africa.
Additionally techniques is also having a positive impact you know apple business by expanding the scope of the phone besides sourcing contracts with key industry suppliers to include more geographies and crops.
Please turn to slide eight.
During 2019, we redefined and broaden our strategy around right block to address the unique accomplish needs of each crop supply chain not just bananas.
Going forward in 2020, we are taking our deep expertise in ethylene management and Smartfresh applications technologies, we implemented solutions that are adapted to the supply chains of more than 11 different crops.
In support of this new strategy, we have redeploy resources in deep <unk> crop diversification markets, such as California, Mexico, Peru to drive Smartfresh diversification sales.
That said bananas remain one of the crops. The we continue to target having introduced a new simplify protocol to retailers, which delivers an estimated meaningful two extra days a banana yellow lights.
In fact, we successfully completed one retailer trial and we have four others currently ongoing.
In the meantime.
Right blog as a brand will be strictly limited to any project related to a proper Terry mortify atmosphere packaging backs.
We are confident that the new strategic foundation that we put in place who start generating incremental smartfresh shales through abroad and diversification strategy in 2012.
Please turn to slide nine.
First cloud is our digital platform provides real time data about brothers freshness and projected shelf life.
These digital solution includes unique sensor technology Internet connectivity data analytics disorder screenings among monitoring.
In combination with decades, Oh, I refresh Splunk is geology expertise it provides customers with powerful supply chain insights and enables better and more informed decision making to maximize their return.
In 2019 fresh spot revenue more than double and was a growth contributor to our consolidated results for the year.
The performance was driven by traction in United States and she led mainly with our storage insights model.
First slump improves the value of our existing portfolio of services by providing additional customer insight and he's the platform through which we will launch new digital offerings.
We continue to investigate new ways to utilize analytics for the benefit though were customers and in 2020, we plan to introduced several new innovations when alfresco problem.
The first is geared towards our near harvest brother car Vista, which will enhance insights well the food is still on the tree.
Second is the launch of fresh cloud insights, which is a data discovery tool to increase you optimize grew our operations and third is the launch of fresh cloud Inspector, which is the quality control and quality assurance tool to improve quality from the orchard to the package.
Fresh cloud isn't emotion every Gerard and innovations are just discussed evidence of the service oriented solutions that we bring to the marketplace.
We will continue to build out or capabilities by adding an improving fresh slouch technical delivery as well as link insights collected across the platform to provide valuable an actionable information to the fresh brothers industry and our global customer base.
I'll now, let Graham speak to some of the financial highlights Graham.
Thank you Jordi and a good afternoon to everyone.
Please turn to slide 11.
As Jody noted at the outset.
Please keep in mind.
Cedar alone you all says in 2019, when comparing our fourth quarter performance versus the prior year period.
The significant revenue shift from third quarter fourth quarter due to harvest tiny.
As an example of why we emphasize that investors should consider our business in half versus quarters.
Net sales for the fourth quarter of 2019 increased 14.4% to 60 wondering daughters.
As compared to $53.3 million in the fourth quarter of 2018.
Excluding the impact of foreign currency exchange, which reduced the revenue by one meeting daughters compare to the fourth quarter of 2018.
Revenue increased to 16.3% Genon by a late Apple harvest in North America, Europe compare to 2018.
Which has shifted sales.
To the fourth quarter.
Net sales for the full year 2019 decreased 4.9% to 170.1 meeting daughters versus $178.8 million in the prior year.
The impact of the change in foreign currency exchange rates compared to $1.18 reduced revenue by $3.3 million.
Excluding this FX impact.
Revenue decreased approximately 3%.
The decrease in net sales was primary due to weather disruptions.
In Eastern North America, and the Europe.
Additionally, packet that sales were $19.8 million.
Decrease of 4.7% or 0.1% on a constant currency basis versus the prior year period.
Offsetting these decreases was growth in Smartfresh in Latin America growth up Harvista in North America, and the Latin America, and a new revenue associated with fresh cloud.
Please turn to slide 12, well will discuss margins and operating expenses.
In the fourth quarter of 2019 gross profit increased 18.7% to 47.4, meaning dollars compared to $40 million in the prior year period.
The gross margin increased 290 basis points to 77.8%.
The higher gross margin was primarily a function of the increase in sales related to the timing of Apple harvest across the northern hemisphere.
For the full year 2019, gross profit decreased 5.7% to $125 million.
Compared to the full year 2018.
Related to the reduction sales.
Gross margin remained relatively stable at 73.5%.
Our strong gross margin allows us to continue to invest in R&D in a post harvest innovations.
From a <unk> expense perspective.
We continue to improve our cost structure to create greater efficiency for our business and a better align our operating structure, where dollar revenue base.
During 2019.
Weve built upon the savings we began to realize at the end of 2018.
And we expect these initiatives to continue to generate benefits throughout twentytwenty.
Fourth quarter, selling general and administrative expenses decreased 20.7%.
$12.4 million in the fourth quarter of 2019.
As compared to 15.6, meaning dollars in a prior year period.
Included in selling general and administrative expenses were 2.5, meaning doors in the fourth quarter and a $2.3 million in the prior year quarter of costs associated with non recurring items that included M&A led.
Negation satellites.
Excluding these items.
Selling general and administrative expenses.
Decreased 25.6% in the fourth quarter versus the prior year period, which reflects the companys ongoing cost optimization initiatives.
But the full year.
SGN, a expenses decreased 9.6% to $59.4 million and a decreased by 10.7% versus the prior year period, when excluding non recurring items, such as M&A litigation and the sovereigns in.
Both periods.
Research and development costs were $4.4 million in the fourth quarter of 2019.
Uh-huh point $8 million versus the prior year period due to timing.
For the full year 2019 research and development costs were $14.1 million compared to 13.9 meeting daughters in the prior year period.
R&D remains an important component of our strategy to drive continued diversification beyond apples.
Please turn to slide 13.
Fourth quarter 2019, net loss was $29.6 million, which includes.
$46 million of amortization expense compared to net loss of $1.9 million, which included $11.6 million up amortization expense in the prior year period.
For the full year 2019.
Net loss was $61.5 million, which included $81.1 million of amortization expense.
Compared to the net loss of $30.2 million in 2018.
That included $45.9 million off amortization expense.
Please note that the net loss in the fourth quarter and a four year off 2019 was negatively impacted by an additional 34 meeting daughters of accelerated amortization expense for Ripelock intangibles.
Adjusted EBITDA increased to $10.2 million to $34.6 million in the fourth quarter of 2019 as compared to $24.4 million in the prior year period.
For the full year 2019, adjusted EBITDA decreased slightly to $66.4 million compared to $66.9 million in the prior year.
Adjusted EBITDA margin for the full year improved 160 basis points to 39%, which reflects our heart work in optimizing our cost structure.
Turn to slide 14.
Cash provided by operations was $20.1 million for full year 2019, compared to $3 million for the full year 2018.
The year over year $17.1 billion increase in operating cash flows.
It was primarily driven by a significant improvement in working capital management.
Particularly with an emphasis on better management of cash expenditures, while increasing our collection efforts.
Accounts receivables.
Capital expenditure were $4.2 million for full year 2019, similar to 2018.
We expect our annual capital expenditures to range from 2% to 4% Upsales consistent with our asset light business model.
From a balance sheet prospective.
Cash as of December 30, Onest 2019 was $29.3 million.
Total debt was a 406.6, meaning daughters with a term loan maturity in July 2021.
Our 12 and a half meeting dollars would be involved there was undrawn as of December 31st 2019.
Looking ahead.
We'll continue to focus on delivering growth and optimizing our cost base.
Ongoing cash generation about business remains strong.
We believe our recent agreement with down to terminate our obligations and the tax receivable agreement was well received by our lenders as if lease up incremental annual cash flow, but the language.
Completing a refinancing about that is a top corporate credit card.
Well, it's premature to comment on specifics. We're currently evaluating a number of capital structure alternatives to best position at refresh for its next chapter of growth.
With a view to get it done by June Thirtyth 2020.
Now I'll turn the call back to Jordi for his closing remarks before opening the call. It took you anyway.
Thank you Graham.
Please turn to slide 15.
We are pleased with the resilience of our core business in the face of weather related fluctuations that are part of the industry an effect of business.
We have adapted to a competitive environment and I regaining share within our core Smartfresh franchise in key markets.
And we are encouraged by the results of our diversification initiatives to expand into new regions in crops with our growing portfolio of course harvest solutions.
Oh service oriented approach and proximity to our customers provides us with a competitive advantage to respond quickly to meet the changing needs of the industry.
In that respect the current Corona virus prices is not expected to directly affect or supply chain and our business exposure to China is meaning.
We will stand behind our customers and three more fruit into storage in the event of a temporary slowdown indeed export markets.
Finally, as Graham stated, we expect that into coming months, we will be able to announce our plans to improve a balance sheet and enhance our flexibility to drive future strategic initiatives.
With that operator, please open the call for questions.
Thank you will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Formation tone would indicate your line is in a question Q. You May proceed start to if he'd like to move your question from the Q I.
Participants, you think speaker equipment, and maybe necessary to pick up your hands that before pressing the star Keith.
Please only pull for your questions.
Our first question comes from the line of Ben Klieve with natural National Securities. Please proceed with your question.
Alright, thanks for taking my questions.
First George I'm wondering if can elaborate a bit on your comments you just made on the supply chain risks I you know in the context of by the of Corona virus.
You know I understand that that the exposure to China is nominal can you really elaborate though on really what what.
What that exposure as Jim do you have any kind of raw material any kind of production that that.
Of of either raw materials or finished goods I guess that that you see any risk for.
Thank you Ben for your question no. We don't see any risk that's why I stated in my.
In my explanation that.
We don't see any disruption to our supply chain.
Right.
That's exactly why what I meant that there is no direct implications or impact on our supply chain when I referred to the exposure to China being minimal I meant to say that our revenue in China is very very small and is immaterial.
So we do not see obviously everybody is affected by Corona virus the issue, but we do not see any disruptions to our supply chain and we don't see any negative impact on revenue directly the right way that is because China is a very very small part of already.
Perfect. Okay, that's good to hear.
[music].
A couple couple other questions I'm guessing I'm guessing the answer to this is no, but but can you comment at all in on kind of expected timing.
The its an ongoing litigation that you have any sense of when that may be resolved. When when you may see cash or is that is it just to is it just to not be left at this point for you to really identify even up even abroad timeline.
I think it's premature to which you some date where are we going to see any cash proceedings going away I will see this the push trial process of continued there is a heating schedule for me we do expect.
Sometime after that the judge to make a decision about any potential additional damages that are awarded to our company and we will follow the process. After that so everything is going to normal again.
Thats no I don't have any further comments at this moment.
Got it Okay fair enough.
And then on.
Act, a mess or I don't recall, you guys talking much about that in the past felt so I guess I have two questions here first.
Is this a post harvest product that you are.
Really compliments.
Smartfresh in your and your sort facilities and then second can you just talk about kind of the overall opportunity here.
This is this a product that you think is is it could potentially be placed with with all of your.
Current customers. The Smartfresh is there is there kind of a a niche within the market than you think this is really appropriate for.
Any any color there would be would be interesting, yes, but we did talk a lot about this probably when we launch it in 2017 and we've made some references in the past three years.
Basically active missed is a favorable device for fungus site. So.
Basically that's a delivery method for the phone decides into storage rooms.
And we have explained that it does have a proprietary.
Vantage over other fogle methods and.
Isn't being because you can talk inside the room, which is not the case with other favorable methods and you can do that together with a smartfresh treatment. So you can actually had once the smartfresh treatment and a focus that treatment on that storage room at the same time and we have a proprietary method of doing that fog.
And you know we haven't put too much emphasis but approach has been growing we could you will continue to grow because one thing is the foggo will method and the other thing is the active that you use to fog and those take some time to get regulatory approval to secure supply. So when we launch in 2000.
In 17, we have one active and now we have more active so basically a fungicide program.
As improved dramatically because we do have now more actives.
That are typically used by the industry and we believe that the way that we actually delivering those into storage room is far superior to what anybody else dose. So we do see continuous growth on this because of that of the practicality at how we actually there even focused sites.
I would think publicize our aneesh you know, it's a very up are very important part of both.
Goals oranges and hold those are treated.
Got it okay perfect on.
I appreciate the color I'll, Oh, I guess I'll turn back over to the queue. Thanks. Thanks for taking my questions. Thank you good.
Thank you once again, if you'd like to ask a question. Please press star one on your telephone keypad.
Just confusing speaker equipment, maybe necessary to pick up your handset before passing the Stacie is one moment. Please the we pull for more questions.
Our next question is a follow Vancleve with National Securities. Please proceed with your question.
Alright. Thanks, I was I was trying to be shovel resin pass the parts, but but I'll jump back in here.
Okay.
Great I might have missed comments on this and if I'm, making you repeat yourself I apologize, but can you can you elaborate on what the what the line item the impairment line item was the $10 million.
In the fourth quarter, and I don't think I caught that.
Oh.
Yeah, Ben Thank you for the question.
The $10 million bird to.
As an investment right now.
It was the investment made.
A couple of years ago.
And so every year.
Balance sheet, we reevaluate your AD will fail market batty, so thats just the that county.
Just a top ups.
Got it okay.
And then I I guess, one last one for me just just a modeling question.
Good good to see the movement on the S.J. line on and I'm wondering if you can can elaborate on kind of the extent that your that you're going to see continued movement on that line you know.
Into the back half of the year ores as really the initiatives really going be focused here are the cost reduction efforts have those bin bin.
Largely completed at this point and or possibly focused here in the first half of the year or do you think there's going to kind of ongoing a reduction efforts on that line item.
At least into the end to the end of 2020.
Yeah, we see that to be ongoing and then the with it.
Heavy lifting so to speak.
80, and particularly 19.
And well this year 2020 will continue to see improvement.
Okay, Alright, a very good I think the time that officially does it for me I'll get back in line.
Excellent. Thank you Beth.
Thank you, ladies and gentlemen at this time I'm showing no further questions I'd like to end the question and answer session and turn the conference back over to Jordi for Ray for closing remarks.
Thank you very much everyone for the attention and interest and supporting have shown to a company and.
Well look forward to senior in the next quarterly update thank you.
Thank you ladies and gentlemen, this does conclude today's conference call. We do thank you for attending you may disconnect your lines.