Q1 2022 AgroFresh Solutions Inc Earnings Call
Good afternoon.
And welcome to agro fresh solutions first quarter 2022 conference call all participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions. Please.
Please also note today's event is being recorded.
This time I would like to turn the conference call over to Jeff Sonic Investor Relations at ICR.
Thank you and over to you Sir.
Thank you and good afternoon, today's presentation will be led by Clint Lewis, Chief Executive Officer, and Graham Miao 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 of 1095, 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.
Also refer to certain non-GAAP financial measures today. Please.
Please refer to the tables included in the slides that will accompany this presentation as well as the press release, which can be found in the Investor Relations section of our website at a refresh dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures with that I would now like to turn the call over to Clint Lewis.
Yeah.
Thank you, Jeff and welcome to everyone on the call.
The first quarter marks the first half of the southern hemisphere growing season.
And while most of the harvest has yet to commence.
We're off to a solid start in the first quarter.
This quarter also shows the benefit of our diversification strategy, leveraging our global footprint and the breadth of our product portfolio to deliver both revenue and EBITDA growth, while managing through adverse weather conditions that impacted select Latin American markets, such as Brazil and Chile.
With the first quarter in hand, I am pleased to reaffirm our goal to drive growth in both net sales and adjusted EBITDA through continued strong growth and diversification and commercial execution. This year.
With that I will transition into the business drivers for the quarter.
As a reminder to further sister 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.
Diversification revenues accounted for 43, 3% of consolidated revenues for the trailing 12 months ending March 31, 2022 versus 39, 7% in the trailing 12 months ended March 31, 2021, representing an 11, 2% increase.
This marks our fifth consecutive quarter of double digit diversification category growth.
We define our diversification category as the components of our business, excluding smart fresh for Apple, which covers all other crops solutions and technologies.
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 minimises the adverse impact that any one of these variables can have on our results.
From a geographical perspective, our Europe Middle East and Africa region generated 24, 4% growth in sales or an increase of $2 5 million for the first quarter of 2022 versus the prior year period.
Growth was driven by smart fresh and harvest in South Africa, which experienced an early harvest season, and a larger crop size, resulting in an increased need for storage and freshness solutions. Additionally.
Additionally, momentum in our fungicides and disinfectants category was especially strong in the region driven by market penetration and product expansion.
Latin America, which represents our largest region during our southern hemisphere season comprised about half of our first quarter revenues and decreased eight 2% versus the first quarter of 2021.
The decline was primarily driven by lower sales of smart fresh in Brazil, where the industry was met with severe weather that resulted in a crop that is estimated to be approximately 30% lower than the 2021 crop which was their largest of the past decade.
However, as always in the first half of our seasons, there's an element of sales timing at play due to varied harvest windows relative to the prior year.
We're seeing this dynamic in Chile, this year, which was lighter in the first quarter versus the prior year, but is expected to rebound in the second quarter and second half of the southern hemisphere season.
From a product solutions perspective, we achieved growth across each of our diversification categories in the first quarter when compared to the first quarter of 2021.
In terms of dollar contribution I'd highlight our other category, which benefit from sales of our control Tec equipment in Spain, and Chile, and contributed about $9 million of growth as well as our fungicides and disinfecting category that I mentioned, a few moments ago, which grew nearly 19%.
<unk> in the first quarter and contributed $8 million of growth versus the first quarter of 2021.
And bind these categories drove one $7 million of growth during the first quarter.
Our other one MCP category, which represents our continued focus to leverage our smart fresh franchise beyond apples and into other crops and geographies and includes key solutions, such as our Vista and <unk> block grew four 5% versus the first quarter of 2021.
Rounding out our diversification was the coatings category, which grew by 14%.
These gains versus the prior year period were partially offset by our smart fresh for Apple category, which decreased seven 5% primarily due to the extreme weather in Brazil that limited Apple production.
In summary, we're off to a good start this year.
As we look to the balance of the southern hemisphere season, and the rest of 2022, we will continue to advance our diversification strategy, while continuing to defend our strong industry, leading franchise in smart fresh for apples.
As the pandemic has eased my leadership team and I have been traveling to meet with a number of our customers both domestically and abroad.
One conversation with a customer in the Pacific Northwest region continues to resonate with me.
You shared a very simple yet impactful perspective on the important role we play within his business, noting that as a grower processor. They have a tremendous investment tied up in their harvest.
The preservation of the value of their fruit in storage is Paramount and is something every grower loses sleepover.
His confidence in the performance of smart fresh and our other solutions could not be overstated.
And its feedback like this that reinforces the importance of the work that we do to support the post harvest industry and motivates our team to continue to find ways to support our customers every single day.
I'm energized by their positive feedback on the quality of our products and our people.
And I'm reminded of our duty as the industry leader in the post harvest freshness solutions customers.
Recognize our unwavering commitment to service and the support we provide to ensure that they are able to deliver a consistent supply of high quality fresh produce to the market.
I continue to be very encouraged by the progress, we're making towards developing new capabilities and the experienced team that has been bolstered with a number of new additions to advance our growth through diversification strategy.
I'll now pass the call to Graeme to speak to some of our financial highlights Graham.
Thank you Glenn and good afternoon to everyone.
Net sales for the first quarter of 2022 increased two 3% to $39 $9 million compared to $39 million in the first quarter of 2021.
Excluding the impact of foreign currency exchange revenue increased five 5%.
As Clint discussed.
The net sales increase was primarily driven by leveraging our product portfolio of fiber solutions.
With each of our diversification categories generating growth in the first quarter.
Gross profit for the first quarter was $28 million.
Impaired to $28 seven meeting dollars in the prior year period.
And our gross profit margin was 71% as compared to 73, 5% in the prior year period.
The margin variance is.
It's primarily mix related.
And it reflects our transition to a more diversified product portfolio.
Gross margin was further impacted by higher material costs associated with inflationary forces.
However, we are working hard on both cost savings and pricing initiatives to help mitigate these headwinds and.
And they expect some relief later in the year.
As we generate sales on lower cost inventories.
While we always strive to maximize margin.
Our primary focus is on generating gross profit dollar growth.
<unk> with our growth.
Suffocation strategy.
Research and development costs were $3 $1 million in the first quarter of 2022.
Compared to $3 $3 million in the prior year period.
Driven primarily by the timing of projects.
Our investment in R&D provides support increased to support our product diversification activities to expand our registrations to new crops and geographies dip.
<unk> developed a new proprietary solutions.
Able to out our coatings offerings and strengthen our technical services.
In alignment with commercial growth objectives.
SG&A expenses decreased 12, 2% to $11 $9 million in the first quarter of 2022.
As compared to $13 six meeting dollars in the prior year period.
Driven primarily by savings in other administrative expenses.
While cost control.
With me is our focus for the business.
Our plan contemplates some resource reallocation this year as we steered organization toward growth and the revenue generating activities.
As a result for the full year 2022, we expect SG&A to increase in the low single digit range versus the prior year.
First quarter 2022, net loss was $3 $2 million compared to net income of $8 $2 million in the prior year period.
As a reminder, during the first quarter of 2021, the company recorded $14 $4 million of other income associated with litigation settlement proceeds.
Adjusted EBITDA increased by $8 million.
Five 9% to $15 million in the first quarter of 2022.
As compared to $14 $2 million in the prior year period.
Adjusted EBITDA margin for the trailing 12 months ended March 31st 2022 was up 37, 7%.
As a reminder, our adjusted EBITDA margin performance should also be viewed in total for the year to align with the respective southern and northern hemisphere seasons.
Where our for a.
Second half sales volumes.
Late two correspondingly higher margins for the business.
Cash provided by operations was $2 $5 million for the three months period ended March 31, 2022 versus the operating cash flow of $23 $3 million in the comparable prior year period.
Adjusting for the one time benefit of $14 $4 million of litigation proceeds in the prior year.
Normalized operating cash flow from operations was approximately $8 $9 billion for the three months period ended March 31 2021.
The decrease in normalized cash flow from operations was mainly driven by higher accounts receivables balances as a result of the growth in that sales.
As well as incremental investment in inventory to procure materials in advance to mitigate supply chain concerns.
For the three months ended March 31, 2022 capital expenditures were point fixed, meaning volatiles compared to $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 March 31, 2022 was 59.3 meeting dollars, which represents growth of.
$6 $4 million versus March 31, 2021, and it reflects our focus on driving operating cash flow.
Total debt was $263 $1 million and our $25 million revolver was undrawn as of March 31 2022.
This concludes our prepared remarks, operator, please open the call for questions.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
The first question.
Comes from the line of <unk>.
Joel Jackson with BMO capital markets.
Thank you.
Please go ahead.
Thank you good evening everyone.
Can you lay out what you expect kind of the rest of the year to play out.
You had I think 2% revenue growth this quarter year over year, five 5% excluding FX.
How would you expect the rest of the year to play out.
And then in terms of margins would you expect.
Similar relative margin performance kind of year over year throughout the year or what are the puts and takes are there.
Yes, Joe first of all thank you very much for.
Joining in for the question and I appreciate the.
The recognition of the the net sales and the constant currency impact that would have had if.
If you took out the foreign exchange as we have discussed and trying to provide more kind of transparency around how we see the marketplace evolving we've pegged kind of the growth in the post harvest segment, all things being equal somewhere in the range of three to six.
Percent.
And we see our growth for the full year.
Being within that range and again continuing to also set the expectation for both sales and bottom line EBITDA growth in 2022, and so if you look at the.
2% growth in the $5 five within constant currency you can look at that all kind of within the range and so to the second half of the year, which as you know is the bigger part of our business as we think about the northern hemisphere. There's nothing that we're seeing without obviously the benefit of a crystal ball to say that we should not be able to grow within.
That kind of general market growth rate for full year 2022.
That's helpful.
Beyond like.
Hi.
A high level.
Sales margin and earnings numbers.
Quaint Graham what.
Myles stone being.
In this year.
Our on your piece of paper that you really want to hit whether it.
And why you think that will make this year successful or not whether its a certain product we're getting a certain product in a certain geography, or a trial or something or its a margin or it's a customer getting into something or bundling something or there are a few things.
Things that people aren't so lobbyists Darren so, albeit that is on your list you hit that this year youre going to be setting up for a very good maybe 'twenty two but good 'twenty three 'twenty four.
Yes, Joe I appreciate that and again.
The way I would answer it I hope the things that are clear on our list on management's list are the same ones that.
Our investors and the analysts that track our company and our industry are folks so I want to make sure we're fully aligned around that and so as I look at the higher order of those and we just touched on it first and foremost is we want to continuously drive.
Topline and Bottomline growth to me those are the most important and again to also hold ourselves accountable as we.
We look at the broader market in which we participate we want to make sure given our footprint our capabilities, we're growing within that growth rate. So the first would be the top and bottom line growth. The second as we've discussed and I. Appreciate also your understanding of that is the criticality of the diversification.
<unk>.
We have continued in the first quarter of 2022 was no different we have continued to show double digit growth and I believe this is the fifth quarter that we have demonstrated consistent double digit growth and diversification.
And so thats. The next big thing remember diversification of the strategy is not only the path to drive incremental top and bottom line growth. It is also an important risk management strategy because again, we sit in a world where weather is.
Is the biggest kind of headwind to outdoor agriculture, it's always ever present and that weather can be helpful. It can be challenging.
But it's also unpredictable as to where that adverse or good weather is going to be and so our ability to continue to drive.
Diversification provides an ability that we are less impacted we are less susceptible to an adverse impact in a particular market. When a particular crop on a particular product or platform that we have or a particular customer. So that is also another important metric that we will continue to.
Keep top of mind for for our investors and the analysts.
A third is in happily it's now moving to third and hopefully at some point it moves off debate historically, there's been this concern about our ability to defend our legacy smart fresh Apple franchise, and I think we have continued to demonstrate quarter after quarter year after year, even in the face of competitive pressures that.
Our franchise in smart fresh Apple continues to stay robust and industry, leading because our customers are not just valuing the quality the consistency and the reliability of our smart fresh Apple products, but they also value.
The technical expertise that we bring to support our customers last but certainly not least again I would be remiss if I did not.
Focus on this given the inflationary times that we're in.
Lesser but at the same time I think important yardstick is as the broader market continues to deal with.
Supply chain bottlenecks deflationary pressures. We are also continuing to in a very disciplined way manage our business not only as we work with our own suppliers and I think we've been advantageous around buying in anticipation of some of these and also as we continue to increase our volume of sales, it's giving us some efficiencies with our suppliers.
But also as we move into the second half of the year to smartly responsibly take price, which has not been a consistent activity for AG refresh in the past given the the larger disproportionate impact that smart fresh for apples has had on our historical portfolio. So those would be.
The areas that I would kind of guide you to.
Is there any just finishing that question is there now and thank you for that and is there anything in the new shop that youre in the background looking at whether it's trying to get a.
Yes.
Got it.
Fresh first cloud of fresh cloud order you have a trial done or it <unk>.
Particular customer that maybe we will use the product on avocados and through or it's someone trialing <unk> like is it.
Is there something in the minutiae that you're sort of.
Looking at hopefully come in and really drive $23 24, not drive it which show that you are building the bricks for something bigger later.
Again.
Spot on question and the only thing I would take out words matter Smith is take out the word minutia right. So while we are early days again strategically and I. Appreciate your recognition of that so as we think about diversification, we think about driving growth and those things that will continue to differentiate and drive value for AG refresh as.
We've talked about under that banner of diversification. The big rocks are one other one MCP right. So it's leveraging our smart fresh franchise in other crops in other markets beyond apples, it's leveraging products like harvest that is an analog of one MCP for near harvest.
Again, it talks about the life the life cycle management of our franchise in one MCP. So thats one big rock and then while still early strategically it's important for us is advancing our natural plant base.
New coding analog which is via fresh mechanicals and we expect also in the near future to secure organic designation, which we do believe that will also help differentiate both in the U S and in Europe and then also we are continuing to innovate and I think lead across our competitive set.
With our fresh cloud platform in using.
Data and real time insights to help our customers understand timing of harvest the quality of produce as it's moving from storage through the supply chain. We are encouraged about the customer trials across the different markets that we're getting both for provide a fresh botanicals and with <unk>.
<unk> cloud so not manutius strategically important but also at the same time still recognizing early in the selling cycle with these important customer trials.
Thank you very much.
Thank you Joe.
Thank you. The next question comes from the line of Gerry Sweeney with Roth capital.
Please go ahead.
Hi, Good afternoon Clinton Graham Thanks for taking my call.
Thank you Jerry.
Glen sort of I don't know if as a follow up but I want to ask the question a little bit differently that was disposed but.
Diversification has been growing.
As you said five consecutive quarters of double digits.
We look out is this a lot of.
Blocking and tackling looking at registrations geographic expansion, maybe even some new products and moving around and then as you even said coatings and just a gradual.
Continuous increase.
For several quarters or is there one or two things sort of in the background that sort of get you excited that say you know what this could be a little bit more of an opportunity for us.
Yes.
Again I appreciate the question and at least as I am interpreting the question and then you can tell me, if we need to dig a little bit.
Deeper.
Diversification as defined we will continue to be the engine of growth for this company and will drive top and Bottomline growth. We've also continued to set the expectation is as our mix changes that while historically people may have anchored on gross profit margin.
Don't really look at net.
Gross profit dollars.
Which again, we will show the volume expansion that we have we will have from diversification in the mix of different products and platform beyond the traditional or historical smart fresh four four apples. So as we think about driving growth in the near and medium term, we still get very excited about.
The organic opportunities to drive sustainable top and bottom line growth from that diversification strategy.
I would say in terms of the leavers to unlock that we sit on today, a fair amount of registrations for <unk>.
Other crops in other market and the opportunity for US now is really about putting the right commercial focus on exploring those opportunities across the other markets.
Got it.
That is helpful. I got you so.
Switching gears slightly you talked about potentially looking at some pricing I think later this year.
Trucks are sold in an inflationary.
Larry pressures.
Pricing.
And <unk> not something we.
Generally heard in the past.
Again, but that is a shift away from as you said moving that smart question.
Getting that stable if not improving.
On your list earlier, but.
Yeah.
Do you have the confidence that the market could bear some pricing across all categories or would it be a little bit more selective I'm just curious as to you know.
Your thoughts on that.
Yes, it's a really good question Jerry.
Again, I think we always have to be canon transfer that's not been part of the commercial discipline of the company in the past to be fair.
The company and.
This reinforces again the importance of diversification mix had been almost exclusively focused on defending the legacy smart fresh Apple business in the face of.
The copycat generics, if you will and.
These other copycats, not having anything to lever against AG refresh other than just price.
So our ability to be able to continue to command the industry, leading premium net premium and have a good spread against those competitors and still hold on to a fairly significant global market share.
Our success was.
More in holding price or modulating any decline in exchange for longer term multiyear contracts and also those contracts, allowing us to sell other products like our fungicides and disinfectant into existing Apple customers. We've also.
Deployed fresh cloud very strategically we have a number of these large.
Apple customers, so that again, they see the total bundle of products not just smart fresh apple, but they see the board bundled products and services that address the collective effect of all of those is allowing us to continue to hold that share and the price premium there so holding.
Price and having a clear line of sight around the sticky and the predictability of that price over a number of years given these multiyear contracts has been a success without question.
Now given the inflationary pressures and we're seeing even in the categories of all foods and specifically in fresh fruit and produce we're seeing the increase in prices at the retail and the consumer level and so it's giving us the opportunity quite frankly to smartly selectively.
Earn the right to take price.
Especially across that mix and as we sunset some of the historical multiyear contract that didn't have an index to change price, but now as we reset to reset those with a price premium to offset and we believe as we move into the second half of the year, which is our biggest half with the northern.
Hemisphere.
Our expectation is to see more of an offset of those inflationary pressures with our ability to start taking price in a more disciplined way.
Also.
I'm not sure.
Okay.
You can answer right here, but I believe some of the so called generic copycat.
Products, they actually have a different cost structure because.
<unk> owns a molecule and I believe copycats actually.
Licensed the molecule and ore on Leach.
I'm not sure if that exactly manufacturer it does.
Does that basis actually give you a a.
Little bit of a benefit in an inflationary environment.
No because again, if I'm understanding the comment there so in some respects they can reference our data package and some of the early talks and safety data, but it's not like they have to pay us to be able to.
To register the product because we've now loss a patent on it right. So what helps build the moat for US is the ability one to secure other registrations for one MCP for other crops in the market and we have to generate that data and again, so too does the competitor that they have to be able to do that.
The second is from a commercialization standpoint, we have the global footprint on a regulatory basis, we have the global footprint on the commercial side. So we believe that helps drive the quote unquote broader moat and keeps the stickiness of the smart fresh Apple franchise.
Got it and then one final question I think you alluded to some changes in SG&A or reallocation just curious.
If that has to do maybe a little bit more to sales or what the process would be on that.
In the second half I guess.
Yes, so some of it again, where you're seeing some favorability in SG&A in this quarter as we talk is really more around timing, but again, we want to continue to demonstrate a discipline around focusing our resources.
And the capital entrusted to us by our investors to value generative revenue generating activities and for US given the previous point is really around.
How do we continue to expand our commercial footprint now again, we have a global footprint already so as I've, often said from an ROIC standpoint, the most effective and efficient use of that dollar as we book customer facing revenue generating.
Our representatives in key markets to advance new registrations, we have for high value crops in other markets and so that's really where the focus is.
Got it I appreciate it.
Thanks for your time and a nice start to the year. So.
It certainly doesn't go unnoticed I appreciate it.
Thanks, Joe I appreciate very much.
Thank you.
The final question comes from the line of Sameer Joshi with H C. Wainwright.
Please go ahead.
Thanks Glenn.
Just a little bit more on the SG&A front.
On the revenues you had the impact of the currency exchange.
What's the benefit that you did on the SG&A.
Because of that.
The <unk>.
Thank you for the question Sameer, It's Graham.
The benefit in our SG&A year over year.
Reduction is primarily due to one is timing.
And to our conscious effort in.
In reducing our administrative on at mean line item.
<unk> for the full year, we do anticipate certain reallocation of resources to support sales revenue generating activities.
Got it.
And then just sticking to that line item in terms of leveraging.
This going forward.
For example, once you have more and more sales of light differentiation other not diversification product.
Do you see.
The SG&A as.
<unk> of total revenue.
Decreasing going forward in getting that leverage benefit.
Absolutely absolutely.
Thank.
Thank you for the office of Asian, and and then and then just as a matter of fact that if we look at our P&L in our line items.
Over the last four years, three or four years and then starting in 2018 19, Ray and then that the percentage as a revenue has actually over the years that consistently decreasing.
So I agree with you that we should see continue to see that operating leverage.
Okay to be reflected in the P&L.
Got it good to hear that.
This next question may appear a bit.
My you, but let me just lay it out.
Because of high inflation is there.
Pak on demand for.
Fresh produce that is requiring.
More use of your product whereby improving youll see.
I don't know if you understand what I'm, saying, but is that a increase in demand.
Maybe because of inflation.
So.
Okay.
Very good question and I am a strong belief and as we continue to tell the story.
Of agribusiness there are no now your questions. So please bring them all on.
I've always said there are undeniable facts.
That support the investment in a company like agro fresh and I've always said, it's population growth it's growth of the middle class is looking at the growth and the change of the diet.
In the staples that growing middle class has so more and this is even irrespective of what we've seen over the last two years with the pandemic, but there is clearly a shift to have more of the share of the plate. If you will be taken from fresh fruits and produce.
We also know there is less arable land for farming.
The challenge with natural resources like water and the impact of climate not to mention the real continue to push around sustainability and all of those things from an ESG standpoint, So all of those things net net did note.
More of a tailwind to support Agra fresh in the space that we're in and while there is always a concern that high inflation may temper demand what I think we continue to see as we track externally the data we're still seeing increase.
This is in consumption in volume again, there may be a trade across where they may be purchasing it but we can we.
We have not seen any tempering.
Demand for fresh fruit and produce and given what I said before if you look at it on the long term, which again speaks to the durability of AG refreshes and investable opportunity, we see that demand for fresh food and produce only continuing to increase but stay robustly staining.
Got it. Thanks, Thanks for that clarification, and then just in terms of fluid their diversity diversification away from smart fresh for Apple.
What does the acquisition strategy going forward.
There.
Are you talking to potential <unk>, so will you be doing so.
Six to 12 months.
Yes, really good question, so I would say as a market leader in this should never be taken as hubris, but as a market leader in the post harvest space. The expectation that we set for ourselves is that we need to be remaining ever vigilant.
New novel differentiated technology that will have a clear value proposition to the customer the second is which again historically, let's say not always been our mode of thinking four strategics that are market leader, regardless of the industry sector.
We want to avoid any not invented here syndrome.
We recognize as the post harvest space continues to evolve and our ability to grow with that we need to be focused on innovation that again is unique differentiated with clear value proposition and that's what's going to help advance the space that said as I mentioned earlier.
Strong and our data continues to demonstrate that that from a growth standpoint organically. The diversification strategy is working it's continuing to grow and that will be a significant contributor to our growth in the near and medium term, we will continue to remain vigilant.
For <unk>.
Smart responsible M&A or other structure partnerships, but our back is no way up against the wall of having to do something the last thing I would say is we've put a very structured clear strategic and financial framework on how we think about M&A remember.
The majority of.
Technology innovation in the AG space generally is coming from smaller startup academic mom and pop founder led businesses.
Typically not in large scaled.
So that means that from a value standpoint, it's smarter and more efficient from that standpoint.
We've been very clear with our lanes of what we're focused on so I've said before and just to repeat 60% of our focus time energy and effort will be focused on external.
Platforms that we believe are either on market today or can be on market within the next three years, where the regulatory path is clear, it's known and we believe there is a clear unique ideally IP protected opportunity for us to advance.
Commensurate with that 30% then of our time energy effort focused on will be those where again unique novel differentiated ideally IP protected the regulatory path may not be as clear and the timing to market may be somewhere in the 4% to 7% range.
And lastly, as we are a life science company, we need to be smart and responsible of those opportunities that may be further off but that can be truly disruptive, but from a disciplined standpoint on a relative basis that should comprise the remaining 10% of time energy resources. So.
Again, more fulsome answer, but I wanted to kind of convey the smart and responsible way, we're thinking about inorganic growth opportunities.
No. This is great. Thanks, a lot for all the color.
Good luck for the second half.
Thank you so much.
Okay.
Thank you.
Ladies and gentlemen at this time.
As there are no further questions I would like to end the question and answer session and turn the conference call back over to management for closing remarks.
Thank you very much operator, and again, thanks for the questions usually in calls like this we just simply end by saying. Thank you for your engagement and your investment and your interest in AG refresh I think given these very dynamic and volatile times as we look at the stock market in all different indices, none of us have the benefit of a crystal ball, but as investors continue to look.
For yield and return we believe that companies like AG refresh really make for an attractive investable opportunity. One we've talked about the macro theme that regardless of these volatile times, we will continue to be here and for the long term to I think investors and analysts are looking for.
Established companies that have a global footprint that have distinct capabilities and have real margins gross margins operating margins and generate cash flow and I think if you look at it under those.
Criteria again, we believe that agro fresh.
<unk> provides a good opportunity even during these volatile times. So none of US had the benefit of the Crystal ball, but I know I speak for management that we are committed to continue to demonstrate the opportunity for AG refresh to continue to grow sustainable and profitable top and bottom line growth and with that thank you for your interest your support.
The company take care.
Thank you.
Ladies and gentlemen.
Concludes today's conference call.
We do thank you for attending.
You may now disconnect your lines. Thank you.
Okay.