Q4 2021 AgroFresh Solutions Inc Earnings Call
Good afternoon, and welcome to the agro fresh solutions fourth quarter and full year 2021 conference call all participants will be in a listen only mode. After today's presentation. There will be an opportunity to ask questions. Please also note. Today's event is being recorded at this time I'd like to turn the call.
Conference call over to Mr. Jeff Sonic Investor Relations at ICR, Sir Please go ahead.
Thank you and good afternoon.
His presentation will be led by Clint Lewis, Chief Executive Officer, and Graham Miao, Chief Financial Officer, the comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act from 1995.
All statements other than statements of historical facts are considered forward looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events.
Such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC.
We'll also refer to certain non-GAAP financial measures today.
Please refer to the tables included in the slides that accompany this presentation as well as the press release, which can be found in the Investor Relations section of our web.
Site.
Refresh dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures with that I'd now like to turn the call over to Clint Lewis Glenn.
Thank you, Jeff and welcome to everyone on the call.
I'd like to begin by recognizing the conflict in Ukraine.
Well, we don't have operations located in the country, we do have some partners with some exposure.
As well as local customers using some of our products.
As such we want to send our thoughts and support to those that had been impacted by the constant.
We hope for a speedy resolution.
We're actively assessing how we can best support our partners and our local customers through recognized charitable organizations.
With that let me address our performance for the quarter.
We completed our northern hemisphere season on a high note with strong fourth quarter net sales growth. Despite a delayed start to the season due to previously discussed weather impacts.
This was consistent with our expectations and importantly, we met our goal of achieving full year 2021 growth in both consolidated net sales and adjusted EBITDA.
Beyond meeting our financial goals 2021 was pivotal in several respects.
We advanced our growth through diversification strategy.
We reallocated the necessary resources to <unk>.
The business for growth by adding new senior leadership and expertise across commercial and R&D functions.
And we continue to successfully defend our smart fresh Apple franchise, which remains the industry standard and post harvest solutions.
Diversification growth fueled our performance with a 15, 9% increase for the full year 2021, capping off four consecutive quarters of double digit gains in this important metric.
Looking ahead to 2022, we are once again committed to driving growth in both net sales and adjusted EBITDA through continued strong growth and diversification and commercial execution.
I'm also excited to announce that we've just released our inaugural ESG report highlighting our decades long experience and expertise in delivering products and solutions that are helping to meaningfully address the significant issue of food loss and waste in the fresh fruit and produce sector and continues on.
Our commitment to help our customers achieve their sustainability goals.
Nearly one third of all food produced for humans is wasted each year, including 50% of fruits and vegetables perishing before consumption then.
Need for solutions to address food loss and waste has never been greater.
And I'm proud to say that agro fresh plays a critical leadership role in this effort.
The E and the F Court ESG is not a new focus for theme for agro stat.
It is the very core of who we are as a company and what we do.
We are experienced and globally scaled leader in post harvest solutions.
In our ESG report, we've announced a new set of goals that reinforces our commitment to reduce global food waste and its impact on the environment.
Over the next five years, we're setting a range of ESG commitment and action steps that will ensure that our impact and our momentum continues.
Our ongoing innovation efforts will be devoted to leveraging existing and identify new technologies and solutions to support our customers' sustainability goals and driving the adoption of new sustainable solutions like our vital fresh Botanicals line of plant based coatings.
We will also seek to do our part to encourage and enhance gender ethnic and racial diversity in our industry by making it a focus at all levels of our company.
With that I'll transition into the business drivers for the quarter.
As a reminder to further assist your understanding of our business and monitor the progress of our strategy to grow through diversification. We are providing you with additional disclosures on both a geographical and product solutions basis.
The details can be found in our supplemental earnings deck on the Investor Relations website.
Our diversification category was a standout contributed to grow all year.
And we expect will continue to be the engine of growth as we move ahead.
If you look at our business, excluding smart fresh with Apple.
Which we define as our diversification category covering all other crop solutions and technologies. This category grew 15, 9% in 2020 one versus the prior year and represented approximately 42% of total revenues for the year ended December 31 2021.
Focusing on fourth quarter 2021 results, we saw a sequential increase in our diversification mix of approximately 70 basis points versus the third quarter 2021, and an increase of approximately 380 basis points relative to the fourth quarter of 2020.
And while there have been questions in the past about the resilience of our smart fresh for Apple franchise, given ongoing competition from lower quality and lower priced competitors I'm pleased to report that our team continues to do an effective job defending our smart fresh for Apple business.
On a full year basis. This business was relatively stable versus the prior year decreasing a modest one 2% versus 2020.
Importantly.
While there's been some erosion in place we're seeing underlying volume gains that have been driven by strong customer engagement.
Increasing the number of customers under long term contracts.
Lower customer attrition and returning customers we.
We continue to maintain industry, leading margins supported by the high quality of our products and commercial and technical teams.
While we will continue to defend our smart fresh Apple business, we expect continued growth to be fueled by our diversification strategy.
Success in diversification also helps to build a natural hedge against certain known risks and agriculture, such as weather.
Further diversification across products platforms crops and geographies minimize the adverse impact that any one of these variables can have on our results.
From a geographical perspective.
Europe , Middle East and Africa region.
Which was the largest sales contributor for the fourth quarter experienced 15% growth in sales versus the prior year period.
This was driven by timing of sales due to varied harvest windows relative to the prior year as well as the successful harvest season, Southern Europe , where certain Apple varieties and ongoing growth of Fovista all emergency use permits Europe .
As expected our second largest market North America declined 15, 6% during the quarter due to an unprecedented heatwave as discussed last quarter impacted Apple production, particularly in the Pacific Northwest.
This had a negative effect on the quality and yield resulting in lower volumes in storage.
Rounding out our geographic mix of sales or the other markets of Latin America, and Asia Pacific, which grew 29% and 13% in the fourth quarter, respectively versus the prior year period.
From a product solutions perspective, we achieved growth across each of our primary categories.
In terms of contribution to the fourth quarter.
I'd highlight our other one MCP category, which represents our continued focus to leverage our smart fresh franchise beyond Apple and into other crops and geographies.
This includes key solution such as this the NFL block.
Other one MCP sales grew 43% versus the fourth quarter of 2020 and contributed $2 $5 million to grow driven by smart fresh diversification growth.
Benjamin harvest the I mentioned, an increase in F. A block as the flower industry prepared for supply chain disruption ahead of key holidays.
We were pleased with our fourth quarter performance of smart fresh for Apple business as well.
While growing a modest 3% the dollar contribution of $1 $2 million is significant and reflects the size of this business.
Furthermore, we exceeded our expectation in the fourth quarter as we expected the category to see declining sales versus prior year.
The upside relative to expectation was the high quality of fruit late season, Apple varieties that carry a higher commenced with value.
In these situations utilizing smart fresh to extend the marketing window is highly advantageous for the growers Packers to maximize the value of their fruit.
Our fungicide and disinfecting category continues to perform well and grew 23% and was the second highest contributor to growth in the fourth quarter with a $1 4 million increase versus the same quarter last year.
Results were driven by increased citrus production in Morocco.
Additionally, we experienced incremental growth in fungicides penetration in Latin America, which is supported by new commercial partnerships.
Fourth quarter sales of holdings were in line with the prior year period with this category was a strong performer on a full year basis posting growth of 19%.
Coatings is a strategic focus for the business and will become increasingly important going forward as we seek broader diversification to grow beyond palm fruits to other important market segments, such as citrus and avocado.
A key element of this expectation is our final question for clinical supply, which is our plant based edible coatings solution to preserve freshness extend shelf life reduce food loss and waste and provide a superior eating experience.
In summary, we.
We were pleased with our fourth quarter results.
We demonstrated continued strong execution of our diversification strategy with another quarter of double digit growth.
We exhibited better than expected performance within our smart fresh for Apple business and.
And we delivered on our commitment to grow adjusted EBITDA for full year 2021.
These were the key pillars of our plan for 2021 and will be our key pillars moving forward.
I want to recognize our team for their continued focus to drive improved operating results across all of our solutions categories and geographies. We continue to make great progress developing new capabilities and have an experienced team that is well positioned to advance our growth through diversification strategy.
I'll now pass the call to grant to speak to some of the financial highlights.
<unk>.
Thank you Brent good afternoon to everyone.
The fourth quarter completes our northern hemisphere season.
Net sales for the fourth quarter of 2021 increased seven 8% to $55 $9 million compared to $51 $9 million in the fourth quarter of 'twenty 'twenty.
Excluding the impact of foreign currency exchange revenue increased 10%.
As Clint mentioned the net sales increase was primarily driven by our product portfolio of diverse solutions.
Small fresh for Apple experienced a growth in southern Europe .
Due to a favorable late season weather supported by our strong market position and our superior service offering.
Which was partially offset by lower body them in North America.
Due to extreme heat.
Market expansion drove strong diversification growth in our other one M C P and fungicides in the disinfectants categories for the quarter.
Net sales for the full year 2021 increased five 3% to $166 million compared to $157.6 million in the prior year.
Foreign currency exchange had a negligible impact for the year.
The net sales increase was primarily driven by growth in diversification sales and a strong first half performance in our southern hemisphere.
Partially offset by an unprecedented heatwave that impacted Apple production in the large Pacific northwest a region in the United States.
Gross profit for the fourth quarter increased three 3% to $39.4 million.
Paired to $38 $1 million in the prior year period.
Gross profit margin was 75% as compared to 73, 5% in the prior year period.
The marching variance reflects our transition to a more diversified product portfolio as diversification.
Revenue growth outpaced growth from our small fresh for Apple business during the quarter.
Yeah.
While we always strive to maximize margin.
Our primary focus is on generating gross profit dollar growth consistent with our growth flow diversification strategy.
For the full year 2021 gross profit increased one 4% to $117 million.
Research and development costs were $2 $8 million in the fourth quarter of 2021 <unk>.
Paired to $4 million in the prior year period.
Driven primarily by the timing of projects.
For the full year 2021 .
<unk> increased $26 million to $12.9 million compared to the prior year period.
Which was consistent with our plan to drive additional activities following the pandemic induced constraints in 2020.
Our investment in R&D provides for increased to support our.
Our product diversification to expand our registrations to new crops and geographies.
Develop new proprietary solutions.
Expand our coatings offerings and strengthen our technical services offerings in alignment with commercial expansion plans.
SG&A expenses decreased five 6% to 13.2 meeting doors in the fourth quarter of 2021 as.
As compared to $13 $9 million in the prior year period, driven by lower administrative expenses.
We continue to be focused on expense discipline and thoughtful resource allocation as we steer the organization towards growth and the revenue generating activities.
For the full year 2021 SG&A expenses decreased two 3% to $52.6 million, which is consistent with the expectations. We laid out previously.
And it demonstrates the attention with brought to this important performance indicator.
Fourth quarter 2021, net income was $2 $2 million compared to a net loss of $2 $7 million in the prior year period.
For the full year 2021 net loss was $6 $1 million compared to net loss of $53 million in the prior year period.
As a reminder, during 'twenty 'twenty the company recorded a $24 $7 million valuation allowance and the tax provision related to the PSP investment.
Adjusted EBITDA increased by $2 $8 million or 11, 7% to $26 four meeting dollars in the fourth quarter of 2021 as compared to $23 $7 million in the prior year period.
For the full year 2021 .
Adjusted EBITDA increased three 3% to $62 million compared to 60.1 meeting in autos in the prior year period.
The increase in adjusted EBITDA was primarily due to higher sales and lower operating expenses.
Paired to the prior year period.
Adjusted EBITDA margin for the full year 2021 was 37, 4% compared to 38, 1% the prior year period.
Which are largely reflects the impact of product mix.
Due to our diversification strategy.
But the strength of our operating cash flow continued in the fourth quarter.
And our cash provided from operations was $52 million for the full year ended December 31st 2021 versus operating cash flow of $26 $7 million in the prior year.
Adjusting for the one time benefit of 14.4 meeting daughters of litigation proceeds this year and a 4.6 meeting dollars of nonrecurring income in the prior year.
Normalized operating cash flow from operations was approximately 37.6 meeting dollars for the full year 2021 .
And the increase of approximately $15 five meeting daughters versus the normalized prior year.
The increase in normalized cash flow from operations was mainly driven by two extraordinary variables first we.
We realized lower cash interest due to the comprehensive refinancing we did in 2020.
Where we reduced our senior secured debt by approximately one third.
And the second we achieved a significant working capital improvements due to a global focus on this important element, which drove a material reduction in accounts receivables and inventories.
For the full year ended December 31st the 2021 capital expenditures were $4 million compared to $2 $4 million in the prior year period.
We continue to expect our annual capital expenditures to range from 2% to 5% of sales consistent with our asset light business model.
From a balance sheet perspective.
Cash as of December 31st to 2021 was $61.9 billion, which represents growth of $11.9 million versus year end 2020, and reflects our focus on driving operating cash flow.
Total debt was 264 meeting daughters, and our $25 million revolver was undrawn as of December 31, 2021 .
This concludes our prepared remarks, operator, please open the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Formation.
Your line is in the question queue, you May press Star two.
Question from the queue for participants using speaker equipment may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Our first question comes from the line of Joel Jackson with BMO Capital markets. You May proceed with your question.
Hi, good morning, everyone I'm going to ask a few questions maybe one by one okay. Good morning, good afternoon, sorry.
Okay.
Okay. Thanks.
Thanks for the update today if.
If we look about think about 2022.
And the drivers of growth.
At 3% EBITDA growth in 'twenty, one you're 5% sales growth.
Can you talk about where you see sales growth. This year, you know how does smart cross shop, all hanging doesn't erode a bit how has it been offset by growth in the other businesses. Maybe you can talk about the different buckets and then on the earning side. You know you know what would EBITDA growth look like in the sales growth environment. You described to me in.
We know what other operating leverage can you achieve through cost optimizations or have you achieve what you want to achieve.
Yes, Joe So first of all good afternoon and good evening.
To you and everybody else, thanks, very much for the engagement and the question.
Yeah.
Clearly for us in 2021.
The driver of growth is our growth through diversification strategy and as we continue to define and create visibility, it's really demonstrating the growth in all other products platforms.
Beyond kind of the legacy smart fresh Apple and so as we now have turned the page into 2022 and moving forward. We will continue to be focused on driving and further accelerating the diversification strategy growth. So that we will be unwavering in that continued here and again.
That drives diversification across.
Products and platforms. It also drives growth across <unk>.
Jacques or fees, and obviously growth across different crops and also different customers. So we believe not only does that help fuel our growth. It also continues to build a durable asset.
In that it creates a natural hedge against kind of known.
The challenges that can be experienced in agriculture, not the least of which is being a weather. So that that will continue to be the engine of growth moving forward now.
I think also related to the question.
What we also want to try to set the expectations and guide appropriately is while there has been understandably historical focus on the kind of industry leading.
Gross margin and operating margin percentages as we drive that diversification. There is a natural evolution in the mix of the product categories and platforms, each coming with their own inherent gross margin and so youre going to have a natural evolution of that gross margin. So we think the right way to assess our performance.
<unk>.
In that regard is looking at gross profit dollars and as you see through the fourth quarter and full year 2021.
Are those moved in the right direction and we continue to expect.
That growth in actual dollars generated from gross profit and operating profit as we move forward.
Lastly, I'll say relative to our.
Two smart fresh.
For the reasons that you will know.
We will continue to focus on defending.
Our smart fresh franchise smart fresher, Apple franchise, and again as I think you saw in the the results for the fourth quarter and the full year I think tangibly, we are demonstrating the resilience of our smart fresh Apple business.
Globally in the face of lower priced lower quality.
Competitors.
As customers appreciate our direct selling model.
Our our field based technical expertise that we provide and support to our customers the breadth of the portfolio as well as other services that we bring to bear and our ability to move more and more customers to what we call long term contracts and we think in our results that you see.
Tangible evidence of that defending of smart fresh and act in inaction. So we'll continue to defend that legacy base continue to protect.
Industry, leading margin for smart fresh Apple, while we continue to accelerate the impact of the diversification strategy.
So gross profit dollars euros and millions of half in 'twenty, one with 20 to be the goal to try to replicate that or beat it.
Yeah.
Again.
I would say [laughter] rep.
Replicate not from an absolute number but replicate from a standpoint of generating a net.
Positive gross profit dollars that come as a result of that strategy, which is driving greater performance and uptake of the diversified products and platforms, we have and continue to expand our footprint geo expand that footprint across other geographies crops and customers.
Okay can you elaborate a bit on some of the comments you gave on smart cross shop or smart car she talked about Tom.
How are you.
Although price went down you got some volume gains talked about I think being able to lock in some contracts longer term contracts and retain some customer so when I think about the strategy that you're pursuing.
Yeah did you did you did you.
The hope was that you wouldnt, while the hope was that your service offering would would win the day and kind of getting at a higher margin.
Sales or have you now decided to give up on price a little bit.
I mean doesn't mean a bit on price I mean, some of the generic on price.
Got a better service offering out with the bundle, but need a little bit on price right now to try to get back some volume will talk about the what changed the long term contracts and did I read that wrong.
Yeah, I'll just put them, let me just give you some context, there's no there's been no change in our phone because theres been no pivot or material change right and hopefully you see the consistency that that defend smart for sure. We believe we earn everyday that industry, leading premium that as you see.
Has driven a large part of our current and historical gross margin percentage and smart fresh Apple.
And one M C P happens to be the most margin dense platform that we have.
We feel no need to be racing the competition.
And eroding value by chasing price. We believe we have a lot more leavers to two two to manage in defending that franchise than price right that is the ability to bundle other products. It's our direct selling model. It's the service level its strategic platforms like fresh cloud that we've discussed before.
That has caused a number of our customers to sign up for longer term contracts, where there is a better price transparency and security in that regard and so these are multi year contracts.
Two it assures us to getting all of their business and those contracts also allow us to upsell other products in those areas.
We have discussed that we have been willing to be reasonably and responsibly flexible on price, but that is to get and to gain to gain higher volume of business or penetration to gain longer term contracts. So assurance see on both sides as well as two.
Allow other products and platforms to be up sold into those particular areas.
Okay and finally.
If.
But if.
If I look at where the company May go in 'twenty, two 'twenty three and beyond that so you know you hope to can you expand gross margin dollars in 'twenty two.
Is that growth fast enough for you obviously, you've got a lot of projects here a lot of new product. So I think you're trying to expand out.
And grow the verification and keep growing gross profit is it fast enough for you or do you feel that you know you talked about before maybe going in and doing a small bolt on or tuck in or a larger acquisition to try to get.
Get growth faster and how would you assess your balance sheet capacity to do something.
Yeah, Let me ask let me answer the first one so I continue to believe that the company has theres a lot of juice no pun intended left in the fruit on the organic business to continue to leverage our global footprint.
Our global footprint around our regulatory and technical expertise that really allows us to expand to secure additional product registrations to be able to maximize the growth opportunities across the various geographies globally that we operate in as you well know Joel we've been a business that is.
Storage has been more.
More predisposed to Apple and Palm fruit and hopefully you see the output of the success of the diversification strategy has a larger and larger ratio of our business coming from areas beyond the smart fresh Apple area and so specifically to your question we continue to expect.
And to be focused on continued strong growth in diversification that strong growth and diversification. We believe not only will generate good top line growth, but also positive gross profit dollars to the business and we believe there continues to be a good amount of room in that in that.
<unk> acquisition to be able to or any other kind of partnership to be able to advance that as it relates to inorganic. We're also inorganic growth opportunities. We've put a what we believe is strategically aligned and financially disciplined framework, where we're really focusing.
On a potential products that are.
Either in the market or we believe with the regulatory path being clear will be in the market within zero to three years and that has 60% of our focus if you will in being able to source opportunities in that regard the second kind of tranche a focus area is for those.
Unique novel, IP protected assets or opportunities that we believe theres a clarity to the regulatory path that we'll be in market anywhere between four to seven years.
Years, and then the.
A modest portion focused on truly unique disruptive areas of focus but again that is not something that the organization has to do to achieve its goals. We believe there is enough substrate enough capacity in our existing underlying organic business to continue to fuel both.
Top and bottom line growth.
Yeah.
Thank you very much.
Thank you Joel.
Our next question comes from the line of Gerry Sweeney with Roth Capital You May proceed with your question.
Good afternoon, and Clinton Graham Thanks for taking my call.
Pager.
I wanted to follow up on some of what you were talking about.
Maybe.
Phrase it slightly different obviously diversification is a big focus and tens of thousands of customers.
What are the key focus.
Call points for 2022.
Suffocation, you mentioned Geo expansion.
Registrations.
What should we be looking for in terms of just in terms of milestones, maybe just give us a little bit more.
A little bit more of a roadmap per se.
Yeah, so the key.
Break it down a couple of different ways, Jerry So I think the key areas, especially as we think about.
Gross profit dollars is really looking at the diverse the one the other one MCP diversification.
Clearly that Leverages, our industry leadership on the one MCP platform and continues to also leverage both our commercial and regulatory.
Footprint globally to be.
<unk> to pursue registration is again remember for each product Apple for each product application on each unique crop in each market you need to generate unique data and get that approved through the regulatory bodies in that particular country <unk> jurisdiction.
So.
In terms of what to look and expect is continued growth of that other one M. C. P category, which obviously includes products like harvest that's still very much in launch mode in a number of our regions globally and obviously within Europe , we're still under opera.
<unk> under emergency use permit authorization, we are working earnestly with the regulatory bodies to gain a full.
Our full regulatory clearance, but we continue to be encouraged over the last two seasons that the markets in Europe , especially being challenged with supply chain issues labor issues have seen the tangible benefit of harvest both in helping to time the harvest if you will as well.
<unk> managed through various labor shortages and dynamic so other one M C. P R.
Harvest.
Also as you look you've seen in 2021, but we also expect in 2022, where you look at the continued growth of our fungicides and disinfectant categories, especially as we continue to grow in the area of citrus.
As well as we continue to.
Leverage.
Our fungicides, along with existing and legacy Apple customers.
And then last but certainly not least.
Continue to look at the growth in the areas of coatings right. So you saw this year full year, 19% growth in the area of coatings will continue to be excited about our kind of new entrants into the coatings area with our vide of fresh botanical line and as we believe.
Customers will continue to be exploring and looking for.
<unk> base more natural solutions with respect to coatings, we feel good about the prospects for continued growth both of the coding area, but specifically on a variety of fresh Botanicals line.
Gotcha.
A follow up to that answer.
I think it may have to be broken down slightly again, but yeah. So.
One.
One MCP or the other one MCP products right, they're really registration driven at this point.
Could you or would this be a fair way of looking at it as maybe digging in and understanding.
The addressable market.
That.
Either you're in process.
Through the registration or planning to register some of these products to get a better understanding of how much this tam could expand.
Is that possible, maybe not today, but if we dig in future period.
Yeah, and I think we could start today right. So one just to clarify right I think it is.
Really important and this gets back to the underlying business. It gets back to the organic drivers of growth there are a number of.
Registrations that we have already today that we are still relatively I would say in early nascent in various stages of launch of commercializing those assets right. So these are things that we have today, but again, we have the registration we have the marketing.
<unk> that were in various stages of kind of early commercialization, where we believe we continue to have more upside more opportunity to penetrate.
In parallel with that it's continuing to secure net new registrations that as we sit on these calls today.
<unk> are in various stages of regulatory review working to get full approval with the with.
The kind of the durable as aspect of this asset where the regulatory path is fairly well defined because we may already have that product registered in a similar country <unk> market. So it's both leveraging existing products that we've secured or recently.
Is the secured and the last one or two years registration, how we grow and maximize that potential as well as the ongoing work that we're doing to secure net new registration. So it's the combination of those two things that are continuing to fuel the organic growth.
In terms of the Tam in terms of Tim I'm, sorry to cut you off just as just to.
Complete that piece I think we've also been consistent around if if we look in our let's say traditional or core.
Footprint, which has largely been the kind of the palm fruit.
Categories, we've tended to find that core market, if your addressable market somewhere in the range of 500 to 600 million and then we have further expanded the Tam too.
What today is either addressable market, we believe can be addressable with the right evolution of which we participate in that evolution in upwards of $1, two or <unk> higher up.
Billions so.
Gives you a sense of how we look at the broader market opportunity for the types of solutions and services that we have.
Got it.
That's super helpful. And then I mean, just for the sake since we're on this topic maybe.
Does that $1 2 billion that doesn't necessarily include fungicides coatings are they.
That's a different market.
No. It is it is included in that got it okay, yeah and the other piece just just for completeness and again for full transparency right. It also recognizes regions today that are underserved or immature right. So one of the great. Examples of that is China. So so we continue to believe that for the broader post harvest market.
And therefore also for <unk> as a leader in post harvest a market like China is hugely underserved because of the lack of infrastructure, but at the same time different from some other emerging markets are developing market in that regard there is strong governmental and top down.
Mint and investment to be able to build up the infrastructure in a key market like China to meet the ever growing internal demand consumption needs that China has and we believe and we think they see the opportunities in the post harvest space for that.
That's super helpful.
I appreciate it thank you thanks Graham.
Okay.
Our last question comes from the line of Amit Dayal with H C. Wainwright you May proceed with your question.
Thank you Hi, Glen tie Graham Thank you for taking my questions.
Thank you.
And with respect to your comments around you know gross profit doing what was right I mean, you're saying we should look for gross profit dollars to keep growing so in that context, I really sort of entering a period, where we are now potentially going to see.
You know 10 plus percent.
Topline growth.
Margins are maybe going to be shrinking, but gross profits are higher.
I mean are we entering a period of.
Higher revenue groups.
Yeah. So let me let me answer it.
This way and I think this is also something that we want to continue to help our investors and the investment community continue to appreciate what we believe is the opportunity in the post harvest segment and therefore, the opportunities for a company like Agra fresh as.
We look at the kind of the industry sat in the sector in which we play in that post harvest segment based on external kind of validated data the market as expected and again, let's I'm going to put a big caveat on that given some of the geopolitical.
The dynamics that we're all dealing with but the market is generally expected to grow at a fairly steady kind of maybe it's I'll say, 3% on the low end to maybe 6% on the high end.
We also want to recognize that again similar to the comment I was sharing with Gerry that we also have to take into account where some of that growth is going to be higher than the average is going to be in kind of emerging and developing markets that continue to have benefits of.
<unk> growth GDP growth desire for consumption of more fresh fruit and produce but recognize they lack the internal infrastructure to be able to really preserve the fresh fruit and produce all of those are opportunities for us because we're a leader in the post harvest segment, we have a global footprint, we have we have.
Teams already in these markets in every major kind of growing region to be able not only to capitalize on that trend, but be able to help accelerate and facilitate that so we think about the marketplace in terms of the size of the Tam as I defined previously, but also we believe that market is going to continue to grow at a range of <unk>.
3% to 6% for the for the foreseeable future caveat it against geopolitical dynamics inflationary to all the things that all of you are or are working through but again I think it's important.
For the investment community to me the trends that underpin. This industry are both non debatable, they're undeniable and they're durable because they are supported by population growth.
They're they're they're they're they're benefiting from growth of the middle class in emerging middle class and discretionary income.
The less arable land for farming less resources like water the impact of climate the desire to have more of that diet being taken from fresh fruit and produce oh and by the way we launched our ESG report in parallel with our fourth quarter and full year earnings.
And again ESG, especially in the recognition of the impact of climate the impact on food waste has gone from Hey, that's a nice to know to a major recognized theme, where Agra fresh that's our core business. That's our mission. So when I think about it when we think about it we look.
The market in which we operate is going to continue to grow.
It's also durable for those reasons and then the question is Agra freshest position in that market already as a leader as our global footprint recognizing what drives success in impact, which is having the direct customer relationships the breadth of our portfolio the technical and regulatory.
<unk> expertise both to support our customers and to generate the data for net new registrations and we believe that is a compelling and investable story.
Thank you for that good.
Yeah.
Graham maybe for you on the operating cost side, you know we are we looking at sort of.
Some level of stability from two.
2021 levels for 2022.
I know it maybe have gone for some some inflation.
But generally are there any other.
Expenses, maybe related to SG&A et cetera.
It might come into play.
Yeah.
Do you have the right thinking.
And as you may.
They have recognized that the company of particularly over the last few years.
We have gone a long way in terms of optimizing streamlining our operations and so today.
We would like to say that the company is in terms of operational performance has sought it so with reached a good.
Steady state in terms of our capabilities internationally.
Early this year, we also boosted.
Boosted our capabilities in a variety of areas in our commercial R&D and BD as well marketing.
So I think we are at a good steady state operation of course that there are opportunities to continue to improve and optimize but our goal is to drive consistent top line as well as a bottom line growth. So overall I.
Think of we're in a in a good state.
Okay. Thank you Graham maybe last one for you.
Fresh cloud any update on that you know how is it being received by customers, where they're using it and you know what.
Our plans are to keep sort of deploying this in the market.
Yeah. Thank you very much for the question.
We continue to feel very encouraged about the progress that fresh cloud is making and again to remind you know we're still in a fairly nascent and early stage. However, we have been I think responsibly public if you will with.
Ah different and.
A number of key large <unk>.
Regional regional and global customers that have chosen to adopt.
Some aspect some offering within the fresh cloud platform in their business. So we've talked about externally star Ranch growers.
We just recently in the last couple of weeks announced Westfalia.
<unk> had adopted.
Adopted the platform and these are these are major players in what I've said in my experience in AG tells me customers don't pilot something they don't adopt something if you will if they don't believe that it's going to provide a meaningful value add in terms of their operations.
We continue to look at the agricultural sector broadly as as one that is still still very early stages and its adoption of data analytics.
Hi.
And so we believe.
We're on the leading edge in that regard we are encouraged by the number of kind of active pilots that we're working through which through the end of 2021 numbers well over 30 customers that are in various active pilot stage with a number of them that we have recently begun.
None to announce such as the two I just realized that have also been able to see for themselves the value add that the platform can have.
And that's encouraging to us remember part of that.
Smart fresh Apple defense strategy.
He is our ability to continue to keep industry leading.
Our pricing and the margin that comes from that has a lot to do with making sure that we're selling are offering at our solutions based on the value based on the impact that it brings and not on price our competitors that don't have platforms like fresh cloud. They don't have the quality of our pea.
People they may not have the breadth of the portfolio have only one lever.
In which to compete and that is on price and the fact that we are continuing even in the face of that competition to see kind of holding the volumes even in some cases slight increases in that volume and still keeping the industry leading premium.
Pricing and margin that we have I think is a testament of the different capabilities that we bring to bear to support that legacy smart fresh Apple franchise and fresh cloud is one of them.
Yeah, Amit if I could also add.
The there's also reflects our resources allocation to support growth areas.
Particularly in certain strategic areas like fresh crowd, the digital space, where we believe.
That we are leading in this space I, we've been working on this for a few years I think we're picking where we're beginning to see.
The fruit of our labor.
And then as evidenced by the signing of contracts and also building and the fresh cloud into Oh, we're a small fresh contracts as well so does our resources and allocation is also part of our overall operating operating cost does.
Yes, we are we're prepared to reduce costs, where needed and also reallocating costs to support our growth areas as you see in our.
Our published financials. This afternoon right. Our SG&A overall in R&D will continue to support R&D and SG&A area I can say that we are actually intentionally looking for opportunities of cost efficiency admin at administration, while reality in cost to sales and marketing.
Both areas like a fresh cloud and geographic areas and also crop auto crops area that we want to expand with a new labels.
Alright understood.
That's what I am curious thank you for all the answers. Thank you.
Thank you.
Operator any more questions.
There are no further questions at this time I'd like to turn it back over to you for closing remarks.
Well operator, thank you very very much and to those that have participated on the call. Thank.
Thank you very much for making the time for your engagement and your interest in our company. Thank you very much.
Ladies and gentlemen that does conclude today's conference call. We do thank you for attending you may now disconnect your lines at this time.
Thank you operator.
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