NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
AgroFresh Solutions, Inc. (the “Company”) is a global leader in delivering innovative food preservation and waste prevention solutions for fresh produce. The Company is empowering the food industry with a range of integrated solutions designed to help growers, packers and retailers improve produce freshness and quality while reducing waste. The Company has an extensive portfolio of solutions to extend freshness across the produce supply chain from near-harvest up to the point-of-sale. These include HarvistaTM for near-harvest optimization and the SmartFreshTM Quality System, the Company's flagship post-harvest freshness solutions. Additional post-harvest freshness solutions include fungicides that can be applied to meet various customer operational requirements in both foggable (ActiMist™) and liquid (ActiSeal™) delivery options. The Company has a controlling interest in Tecnidex Fruit Protection, S.A. (“Tecnidex”), a leading regional provider of post-harvest fungicides, disinfectants, coatings and packinghouse equipment for the citrus market and other crops. Beyond apples and pears, SmartFresh technology can provide ready-to-eat freshness for other fruits and vegetables including avocados, bananas, melons, tomatoes, broccoli and mangos. Additionally, LandSpringTM eases transplant shock for higher potential yields, and RipeLockTM is the Company's modified atmosphere packaging technology for fruits and vegetables. The Company has key products registered in approximately 50 countries and supports customers by protecting over 25,000 storage rooms globally.
The end-markets that the Company serves are seasonal and are generally aligned with the seasonal growing patterns of the Company’s customers. For those customers growing, harvesting or storing apples and pears, the Company’s core crops, the peak season in the southern hemisphere is the first and second quarters of each year, while the peak season in the northern hemisphere is the third and fourth quarters of each year. Within each half-year period (i.e., January through June for the southern hemisphere, and July through December for the northern hemisphere) the growing season has historically occurred during both quarters. A variety of factors, including weather, may affect the timing of the growing, harvesting and storing patterns of the Company’s customers and therefore shift the consumption of the Company’s services and products between the first and second quarters primarily in the southern hemisphere or between the third and fourth quarters primarily in the northern hemisphere.
2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements include all adjustments that are necessary for a fair presentation of the Company's condensed consolidated results of operations, financial condition and cash flows for the periods shown, including normal, recurring accruals and other items. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. For additional information, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2020.
COVID-19
The global health crisis caused by COVID-19 and the related government actions and stay at home orders have negatively impacted economic activity and increased political instability across the globe. The outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. There have been numerous obstacles presented and some localized financial impacts of the pandemic, including fluctuations in foreign currency exchange rates and customer demand and spending pattern changes. During the six months ended June 30, 2021, the COVID-19 pandemic did not have a significant adverse impact on the Company’s results of operations. While we are following the requirements of governmental authorities and taking additional preventative and protective measures to ensure the safety of our workforce, including remote working arrangements and varying procedures for essential workforce, the outbreak presents some uncertainty and risk with respect to the Company and its performance and financial results.
Adoption of Highly Inflationary Accounting in Argentina
GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation rate exceeds 100 percent. The Company closely monitors the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation rate in that country exceeded 100 percent as of June 30, 2018. As a result, the Company elected to adopt highly inflationary accounting as of July 1, 2018 for its subsidiary in Argentina. Under highly inflationary accounting, the functional currency of the Company's subsidiary in Argentina became the U.S. dollar, and its income statement and balance sheet will be measured in U.S. dollars using both current and
historical rates of exchange. The effect of changes in exchange rates on Argentine peso-denominated monetary assets and liabilities will be reflected in earnings. As the three-year cumulative inflation rate exceeded 100 percent as of June 30, 2021, there is no change to highly inflationary accounting. As of June 30, 2021, the Company’s subsidiary in Argentina had net assets of ($4.5) million. Net sales attributable to Argentina were approximately 8% and 11% of the Company’s consolidated net sales for each of the six months ended June 30, 2021 and 2020, respectively.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographic region, product and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revenues for the three months ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific
(4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$580
|
$5,434
|
$5,623
|
$5,212
|
$16,849
|
|
Fungicides, disinfectants and coatings
|
—
|
3,317
|
999
|
—
|
4,316
|
|
Other*
|
235
|
74
|
350
|
100
|
759
|
|
|
$815
|
$8,825
|
$6,972
|
$5,312
|
$21,924
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$588
|
$8,755
|
$6,725
|
$5,218
|
$21,286
|
|
Services transferred over time
|
227
|
70
|
247
|
94
|
638
|
|
|
$815
|
$8,825
|
$6,972
|
$5,312
|
$21,924
|
Revenues for the three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific
(4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$1,581
|
$2,997
|
$5,790
|
$5,558
|
$15,926
|
|
Fungicides, disinfectants and coatings
|
—
|
2,766
|
581
|
—
|
3,347
|
|
Other*
|
90
|
146
|
373
|
100
|
709
|
|
|
$1,671
|
$5,909
|
$6,744
|
$5,658
|
$19,982
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$1,579
|
$5,763
|
$6,479
|
$5,558
|
$19,379
|
|
Services transferred over time
|
92
|
146
|
265
|
100
|
603
|
|
|
$1,671
|
$5,909
|
$6,744
|
$5,658
|
$19,982
|
Revenues for the six months ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific
(4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$2,344
|
$10,796
|
$24,364
|
$11,176
|
$48,680
|
|
Fungicides, disinfectants and coatings
|
14
|
7,863
|
2,546
|
—
|
10,423
|
|
Other*
|
391
|
473
|
801
|
148
|
1,813
|
|
|
$2,749
|
$19,132
|
$27,711
|
$11,324
|
$60,916
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$2,355
|
$18,663
|
$27,352
|
$11,191
|
$59,561
|
|
Services transferred over time
|
394
|
469
|
359
|
133
|
1,355
|
|
|
$2,749
|
$19,132
|
$27,711
|
$11,324
|
$60,916
|
Revenues for the six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Region
|
North America
(1)
|
EMEA
(2)
|
Latin America
(3)
|
Asia Pacific
(4)
|
Total Revenues
|
|
Product
|
|
|
|
|
|
|
1-MCP based
|
$2,142
|
$8,317
|
$22,372
|
$10,373
|
$43,204
|
|
Fungicides, disinfectants and coatings
|
—
|
6,639
|
1,175
|
—
|
7,814
|
|
Other*
|
532
|
585
|
728
|
142
|
1,987
|
|
|
$2,674
|
$15,541
|
$24,275
|
$10,515
|
$53,005
|
|
|
|
|
|
|
|
|
Pattern of Revenue Recognition
|
|
|
|
|
|
|
Products transferred at a point in time
|
$2,160
|
$14,966
|
$23,918
|
$10,373
|
$51,417
|
|
Services transferred over time
|
514
|
575
|
357
|
142
|
1,588
|
|
|
$2,674
|
$15,541
|
$24,275
|
$10,515
|
$53,005
|
*Other includes FreshCloud, technical services and sales-type equipment leases related to Tecnidex.
|
|
|
|
|
|
|
|
|
|
|
(1)
|
North America includes the United States and Canada.
|
|
(2)
|
EMEA includes Europe, the Middle East and Africa.
|
|
(3)
|
Latin America includes Argentina, Brazil, Chile, Costa Rica, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Peru and Uruguay.
|
|
|
|
(4)
|
Asia Pacific includes Australia, China, India, Japan, New Zealand, the Philippines, South Korea, Taiwan and Thailand.
|
Contract Assets and Liabilities
Accounting Standards Codification ("ASC") 606 Revenue from contracts with Customers requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer. The following
table presents changes in the Company’s contract assets and liabilities during the six months ended June 30, 2021 and the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at
January 1, 2021
|
Additions
|
Deductions
|
Balance at
June 30, 2021
|
|
Contract assets:
|
|
|
|
|
|
Unbilled revenue
|
$1,484
|
7,331
|
(7,667)
|
$1,148
|
|
Contract liabilities:
|
|
|
|
|
|
Deferred revenue
|
$1,474
|
2,762
|
(3,349)
|
$887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at
January 1, 2020
|
Additions
|
Deductions
|
Balance at
December 31, 2020
|
|
Contract assets:
|
|
|
|
|
|
Unbilled revenue
|
$1,666
|
13,624
|
(13,806)
|
$1,484
|
|
Contract liabilities:
|
|
|
|
|
|
Deferred revenue
|
$1,175
|
5,348
|
(5,049)
|
$1,474
|
The Company recognizes contract assets in the form of unbilled revenue in instances where services are performed by the Company but not billed by period end. The Company recognizes contract liabilities in the form of deferred revenue in instances where a customer pays in advance for future services to be performed by the Company. The Company generally receives payments from its customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the six months ended June 30, 2021. Amounts reclassified from unbilled revenue to accounts receivable for the six months ended June 30, 2021 and for the year ended December 31, 2020 were $7.7 million and $13.8 million, respectively. Amounts reclassified from deferred revenue to revenue for the six months ended June 30, 2021 and for the year ended December 31, 2020 were $3.3 million and $5.0 million, respectively.
Recently Issued Accounting Standards and Pronouncements
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, "Intangibles - Goodwill and Other", which simplifies the test for goodwill impairment. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the condensed consolidated financial statements of the Company.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”, which introduces a new
current expense credit loss model to measure impairment on certain types of financial instruments. This update requires an entity to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In addition, the FASB issued various amendments during 2018 and 2019 to clarify the provisions of ASU 2016-13. The standard was effective for fiscal years beginning January 1, 2020, including interim periods. The Company adopted the new guidance on January 1, 2020. The adoption of this standard did not have a material impact on the condensed consolidated financial statements of the Company.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify and add
certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement". The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new guidance on January 1, 2020. The adoption of this standard did not have a material impact on the notes to condensed consolidated financial statements of the Company.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, "Income Taxes" and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the new guidance on January 1, 2021. The adoption of the new guidance did not have a material impact on the condensed consolidated financial statements of the Company.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria
are met. The amendments are intended to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The new standard is effective on a date selected by the Company between March 12, 2020 and December 31, 2022. The Company is currently evaluating the impact of adopting this guidance.
3. Related Party Transactions
On June 13, 2020, in connection with the execution of the Investment Agreement (as defined in Note 15- Series B Convertible Preferred Stock and Stockholders’ Equity), the Company, PSP AGFS Holdings, L.P. (the “Investor”) and Rohm and Haas Company ("R&H") entered into a side agreement, pursuant to which the parties agreed that if the Investor or its affiliates has the right to designate at least 50% of the total directors on the Company’s board of directors pursuant to the Investment Agreement, so long as R&H or its affiliates beneficially owns at least 20% of the Company’s outstanding common stock (on a fully diluted, “as converted” basis), the Company and the board of directors will increase the size of the board of directors by one member and the board will elect a designee selected by R&H to fill the newly-created vacancy. Such right is in addition to any right that R&H has to appoint a member of the board pursuant to its ownership of the Company’s Series A preferred stock (see Note 15- Series B Convertible Preferred Stock and Stockholders’ Equity).
During 2016, the Company made a minority investment in RipeLocker, LLC ("RipeLocker"), a company led by George Lobisser who was a director of the Company. In February 2019, the Company made a further minority investment in RipeLocker. As of and for the six months ended June 30, 2021, there were no material amounts paid or owed to RipeLocker or Mr. Lobisser. Mr. Lobisser resigned as a director of the Company on February 18, 2021.
4. Inventories
Inventories at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Raw material
|
$3,077
|
|
$3,100
|
|
Work-in-process
|
5,542
|
|
7,079
|
|
Finished goods
|
14,362
|
|
13,288
|
|
Supplies
|
792
|
|
1,112
|
|
Total inventories
|
$23,773
|
|
$24,579
|
5. Other Current Assets
The Company's other current assets at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
VAT receivable
|
$11,192
|
|
$9,348
|
|
Income tax receivable
|
7,072
|
|
4,716
|
|
Prepaid and other current assets
|
2,044
|
|
3,155
|
|
Total other current assets
|
$20,308
|
|
$17,219
|
6. Property and Equipment
Property and equipment at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for useful life data)
|
Useful life
(years)
|
June 30, 2021
|
|
December 31, 2020
|
|
Buildings and leasehold improvements
|
7-20
|
$7,036
|
|
$6,416
|
|
Machinery & equipment
|
1-12
|
12,328
|
|
11,981
|
|
Furniture
|
1-12
|
2,997
|
|
3,031
|
|
Construction in progress
|
|
1,097
|
|
1,146
|
|
|
|
23,458
|
|
22,574
|
|
Less: accumulated depreciation
|
|
(11,835)
|
|
(10,142)
|
|
Total property and equipment, net
|
|
$11,623
|
|
$12,432
|
Depreciation expense was $0.7 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively and $1.3 million for each of the six months ended June 30, 2021 and 2020. Depreciation expense is recorded in cost of sales, selling, general and administrative expense and research and development expense in the condensed consolidated statements of operations.
7. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2021 and the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Beginning balance
|
$6,925
|
|
$6,323
|
Foreign currency translation
|
(210)
|
|
602
|
|
Ending balance
|
$6,715
|
|
$6,925
|
The Company’s intangible assets at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
(in thousands)
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
|
Net
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
|
Net
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
$798,253
|
($274,345)
|
|
$523,908
|
|
$798,260
|
($254,629)
|
|
$543,631
|
|
Trade name
|
27,222
|
—
|
|
27,222
|
|
27,343
|
—
|
|
27,343
|
|
Service provider network
|
2,000
|
—
|
|
2,000
|
|
2,000
|
—
|
|
2,000
|
|
Customer relationships
|
18,731
|
(4,758)
|
|
13,973
|
|
19,072
|
(4,042)
|
|
15,030
|
|
Software
|
11,342
|
(10,407)
|
|
935
|
|
10,865
|
(9,693)
|
|
1,172
|
|
Other
|
100
|
(83)
|
|
17
|
|
100
|
(75)
|
|
25
|
|
Total intangible assets
|
$857,648
|
($289,593)
|
|
$568,055
|
|
$857,640
|
($268,439)
|
|
$589,201
|
At June 30, 2021, the weighted-average amortization periods remaining for developed technology, customer relationships, software and other was 14.0, 11.5, 1.9, and 1.0 years, respectively, and the weighted-average amortization periods remaining for these finite-lived intangible assets was 13.9 years.
Estimated annual amortization expense for finite-lived intangible assets subsequent to June 30, 2021 is as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
Amount
|
|
2021 (remaining)
|
$20,778
|
|
2022
|
41,054
|
|
2023
|
40,931
|
|
2024
|
40,812
|
|
2025
|
40,729
|
|
Thereafter
|
354,529
|
|
Total
|
$538,833
|
Amortization expense for intangible assets was $10.5 million and $10.9 million for the three months ended June 30, 2021 and 2020, respectively and $21.3 million and $21.9 million for the six months ended June 30, 2021 and 2020, respectively.
8. Other Assets
The Company’s other assets at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Right-of-use asset
|
$5,283
|
|
$6,184
|
|
Long term sales-type lease receivable
|
2,583
|
|
2,821
|
|
Other long term receivable
|
3,323
|
|
3,489
|
|
Total other assets
|
$11,189
|
|
$12,494
|
9. Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Accrued compensation and benefits
|
$7,382
|
|
$7,778
|
|
Accrued taxes
|
6,665
|
|
6,649
|
|
Lease liability
|
1,610
|
|
1,708
|
|
Deferred revenue
|
887
|
|
1,474
|
|
Accrued rebates payable
|
221
|
|
390
|
|
Insurance premium financing payable
|
—
|
|
695
|
|
Severance
|
1,297
|
|
598
|
|
Accrued interest
|
76
|
|
83
|
|
Other
|
3,972
|
|
6,601
|
|
Total accrued and other current liabilities
|
$22,110
|
|
$25,976
|
Other current liabilities include primarily professional services, litigation and research and development accruals.
10. Debt
The Company’s debt, net of unamortized deferred issuance costs, at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Total term loan outstanding
|
$263,876
|
|
$274,313
|
|
Unamortized deferred issuance costs
|
(7,387)
|
|
(8,588)
|
|
Tecnidex loan outstanding
|
1,852
|
|
2,144
|
|
Less: Amounts due within one year
|
3,470
|
|
3,378
|
|
Total long-term debt due after one year
|
$254,871
|
|
$264,491
|
Amended Credit Facility
On July 27, 2020, the Company completed a comprehensive refinancing (the “Refinancing”) by (i) entering into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with the other loan parties party thereto, Bank of Montreal, as administrative agent and the lenders party thereto, and (ii) consummating the transactions contemplated by the Investment Agreement (as defined and described in Note 15 – Series B Convertible Preferred Stock and Stockholders’ Equity). The Amended Credit Agreement amends and restates in its entirety the Prior Credit Facility (defined below).
The Amended Credit Agreement provides for a $25.0 million revolving credit facility (the “Amended Revolving Loan”), which matures on June 30, 2024, and a $275.0 million term credit facility (the “Amended Term Loan” and, together with the Amended Revolving Loan, the “Amended Credit Facility”), which matures on December 31, 2024. The Amended Credit Facility includes a $5.0 million swingline commitment and a $10.0 million letter of credit sub-limit. Loans under the Amended Term Loan bear interest at a rate equal to, at the Company’s option, either the Adjusted Eurodollar Rate for the interest period in effect for such borrowing plus an Applicable Rate of 6.25% per annum, or the Alternate Base Rate plus an Applicable Rate of 5.25% per annum. Loans under the Amended Revolving Loan bear interest at a rate equal to, at the Company’s option, the Adjusted Eurodollar Rate
for the interest period in effect for such borrowing plus the Applicable Rate ranging from 6.25% to 6.0% per annum, based on certain ratios. The interest rate was 7.25% for the three and six months ended June 30, 2021. The Company is also required to pay a commitment fee on the unused portion of the Amended Revolving Loan at a rate ranging from 0.5% to 0.375%, based on certain ratios. The Company is required to make mandatory prepayments of outstanding indebtedness under the Amended Credit Agreement under certain circumstances. During the three months ended March 31, 2021, a prepayment of principal of $9.1 million was made.
The obligations of AgroFresh Inc., a wholly-owned subsidiary of the Company and the borrower under the Amended Credit Facility, are initially guaranteed by the Company and the Company’s wholly-owned subsidiary, AF Solutions Holdings LLC (together with AgroFresh Inc. and the Company, the “Loan Parties”) and may in the future be guaranteed by certain other domestic subsidiaries of the Company. The obligations of the Loan Parties under the Credit Agreement and other loan documents are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in all tangible and intangible assets of the Loan Parties, except for certain excluded assets, and equity interests of certain foreign subsidiaries of the Loan Parties held by the Loan Parties (subject to certain exclusions and limitations).
The Refinancing was deemed a partial extinguishment of the Term Loan (as defined below) under ASC Topic No. 470-50, “Debt – Modifications and Extinguishments” (Topic No. 470), whereby $107.1 million of the $403.8 million outstanding at the time of the Refinancing was deemed an extinguishment and $296.7 million was deemed a modification of debt. As such, unamortized deferred issuance costs related to the extinguishment of $0.7 million were written off in debt modification and extinguishment expenses and the remaining $1.9 million was deferred and amortized over the term of the Amended Term Loan.
In connection with the Amended Term Loan, expenses incurred related to existing lenders of $4.4 million were recognized in debt modification and extinguishment expenses. Expenses to new lenders of $1.1 million were deferred and amortized over the term of the Amended Term Loan along with $6.4 million of lender fees and issue discounts.
In total, the Company deferred debt issuance costs of $7.5 million related to the Amended Term Loan, $1.9 million related to the modification of the Term Loan and $0.5 million related to the Amended Revolving Loan. The debt issuance costs associated with the Amended Term Loan were capitalized against the principal balance of the debt, and the Amended Revolving Loan costs were capitalized in Other Assets. All issuance costs will be accreted through interest expense using the effective interest method for the duration of each respective debt facility. The interest expense related to the amortization of the Amended Credit Facility debt issuance costs during the three and six months ended June 30, 2021 was $0.5 million and $0.9 million. As of June 30, 2021 there were $7.4 million of unamortized deferred issuance costs.
At June 30, 2021, there was $263.9 million outstanding under the Amended Term Loan and no balance outstanding under the Amended Revolving Loan. Due to the prepayment, an additional $0.3 million of deferred financing costs were expensed based on the portion of debt paid. At June 30, 2021, the Company evaluated the amount recorded under the Amended Term Loan and determined that the fair value was approximately $264.9 million. The fair value of the debt is based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
Certain restrictive covenants are contained in the Amended Credit Agreement, and the Company was in compliance with these covenants as of June 30, 2021.
Prior Credit Facility
On July 31, 2015 (the "Closing Date"), the Company consummated a business combination (the "Business Combination"), by and between the Company and The Dow Chemical Company ("Dow), AgroFresh Inc. as the borrower and AF Solutions Holdings LLC as the guarantor, entered into a Credit Agreement with Bank of Montreal, as administrative agent (as subsequently amended prior to the Refinancing, the “Prior Credit Facility”). The Prior Credit Facility consisted of a $425.0 million term loan (the “Term Loan”), with an amortization equal to 1.00% per year, and a revolving loan facility (the “Revolving Loan”). The net proceeds of the Term Loan were used to fund a portion of the purchase price payable to Dow in connection with the Business Combination.
The Revolving Loan included a $10.0 million letter-of-credit sub-facility, issuances against which reduced the available capacity for borrowing. The Term Loan had a scheduled maturity date of July 31, 2021. As discussed above, the Prior Credit Facility was refinanced on July 27, 2020, and there were no amounts outstanding as of June 30, 2021. The interest rates on borrowings under the Prior Credit Facility were either the alternate base rate plus 3.75% or LIBOR plus 4.75% per annum, with a 1.00% LIBOR floor (with step-downs in respect of borrowings under the Revolving Loan dependent upon the achievement of certain financial ratios).
As of the Closing Date, the Company incurred approximately $12.9 million in debt issuance costs related to the Term Loan and $1.3 million in costs related to the Revolving Loan. The debt issuance costs associated with the Term Loan were capitalized
against the principal balance of the debt, and the Revolving Loan costs were capitalized in Other Assets. The interest expense related to the amortization of the Term Loan debt issuance costs during the three and six months ended June 30, 2020 was approximately $0.6 million, and $1.2 million, respectively.
Tecnidex Debt
In March 2020, Tecnidex entered into a €1.0 million loan agreement with Banco Santander, S.A., which provides funding through March 2023 at a 1.5% interest rate. In May 2020, Tecnidex entered into a €0.3 million loan agreement with BBVA, which provides funding through May 2025 at a 2.2% interest rate. In July 2020, Tecnidex entered into a €0.6 million loan agreement with Banco Santander, S.A., which provides funding through July 2025 at a 2.5% interest rate.
Scheduled principal repayments of the Company's debt subsequent to June 30, 2021 are as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
Amount
|
|
2021 (remaining)
|
$1,744
|
|
2022
|
3,453
|
|
2023
|
3,136
|
|
2024
|
257,267
|
|
2025
|
128
|
|
Total
|
$265,728
|
Interest Rate Swap
The Company entered into an interest rate swap contract in August 2019 to hedge interest rate risk remaining outstanding with the Prior Credit Facility (which swap was rolled over to the Amended Credit Facility). During the three and six months ended June 30, 2020, an unrealized gain of $0.3 million and an unrealized loss of $0.7 million was recognized, respectively, in connection with this swap. The interest rate swap contract matured on December 31, 2020.
The Company entered into an interest rate swap contract in January 2018 to hedge interest rate risk associated with the Term Loan. The hedge was settled in September 2018 for $4.0 million, which was amortized through December 31, 2020, the remaining period of the original hedge.
PPP Loan
As part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Company received a Paycheck Protection Program ("PPP") loan to offset eligible costs incurred during the period. Under the terms of the PPP, PPP loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness would have been reduced if the borrower terminated employees or reduced salaries during the forgiveness period.
The Company used the entire loan proceeds to fund its eligible payroll expenses and mortgage interest, avoiding furlough of office employees. As a result, the Company believed that it had met the PPP eligibility criteria for forgiveness and concluded that the loan represents, in substance, a government grant that is expected to be forgiven. As such, in accordance with IAS 20 “Accounting for Government Grants and Disclosure of Government Assistance” the Company recognized the entire loan amount as Grant Income during the three months ended June 30, 2020. The full amount of this loan was forgiven during the three months ended June 30, 2021.
11. Leases
The Company enters into lease agreements for certain facilities and vehicles that are primarily used in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease.
Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, uses the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.
Lease expense is primarily included in general and administrative expenses in the condensed consolidated statements of operations. Additional information regarding the Company's operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Operating Lease Cost
|
|
|
|
|
|
|
Operating leases
|
$548
|
$648
|
|
$1,103
|
$1,254
|
|
Short-term leases (1)
|
224
|
89
|
|
414
|
176
|
|
Total lease expense
|
$772
|
$737
|
|
$1,517
|
$1,430
|
(1) Leases with an initial term of twelve months or less are not recorded on the balance sheet.
Other information on operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
Cash payments included in operating cash flows
|
$1,145
|
|
$854
|
|
Right-of-use assets obtained in exchange for new lease
|
$242
|
|
$795
|
|
Weighted average discount rate
|
8.79
|
%
|
|
9.03
|
%
|
|
Weighted average remaining lease term in years
|
4.4 years
|
|
5.0 years
|
The following table presents the contractual maturities of the Company's lease liabilities as of June 30, 2021.
|
|
|
|
|
|
|
|
(in thousands)
|
Lease Liability
|
|
Remainder of 2021
|
$1,058
|
|
2022
|
1,864
|
|
2023
|
1,487
|
|
2024
|
782
|
|
2025
|
576
|
|
Thereafter
|
1,182
|
|
Total undiscounted lease payments
|
6,949
|
|
Less: present value adjustment
|
1,467
|
|
Operating lease liability
|
$5,482
|
12. Other Noncurrent Liabilities
The Company’s other noncurrent liabilities at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Lease liability
|
$3,872
|
|
$4,650
|
|
Other (1)
|
1,819
|
|
1,782
|
|
Total other noncurrent liabilities
|
$5,691
|
|
$6,432
|
(1) Other noncurrent liabilities include long-term rebates and pension liabilities.
13. Severance
Severance expense was $1.5 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $1.6 million and $0.1 million for the six months ended June 30, 2021 and 2020, respectively. These amounts, which do not include stock compensation expense, were recorded in selling, general and administrative expense in the condensed consolidated statements of operations. As of June 30, 2021 and December 31, 2020, the Company had a $1.3 million and $0.6 million severance liability, respectively.
14. Redeemable Non-Controlling Interest
On November 7, 2017, the Company entered into a definitive agreement to acquire a controlling-interest in Tecnidex. The transaction was closed on December 1, 2017. At the effective date of the acquisition, the Company acquired 75% of the outstanding capital stock of Tecnidex. In connection with the acquisition of Tecnidex, the Company concurrently entered into option agreements ("Option Agreement") with the Seller related to the remaining 25% equity interest. The Option Agreement permits the residual interest to be "put" by the Seller to the Company, or to allow the Company to "call" the residual interest gradually over time as outlined in the agreement. The Seller's ownership of Tecnidex represents a non-controlling interest ("NCI") to the Company, which is classified outside of stockholders' equity as the option of the Seller is redeemable. As of June 30, 2021 the carrying amount of the NCI was $8.2 million in the condensed consolidated balance sheet. Any changes in the redemption value of the NCI are included as an adjustment to Additional paid-in capital on the balance sheet.
The following table summarizes the changes to the Company's Redeemable non-controlling interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2021
|
|
December 31, 2020
|
|
Beginning balance
|
($8,446)
|
|
($7,701)
|
|
Net loss attributable to redeemable non-controlling interest
|
497
|
|
394
|
|
Adjustment of NCI to redemption value
|
(238)
|
|
(1,139)
|
|
Ending balance
|
($8,187)
|
|
($8,446)
|
15. Series B Convertible Preferred Stock and Stockholders’ Equity
Series B Convertible Preferred Stock
On June 13, 2020, the Company entered into an Investment Agreement (the “Investment Agreement”) with the Investor, an affiliate of Paine Schwartz Partners, LLC (“PSP”), pursuant to which, subject to certain closing conditions, the Investor agreed to purchase in a private placement an aggregate of $150,000,000 of convertible preferred equity of the Company. The transaction closed on July 27, 2020 and a total of 150,000 shares of the Company’s newly-designated Series B-1 Convertible Preferred Stock, par value $0.0001 per share (the “Series B-1 Preferred Stock”) were purchased in such transaction (the “Private Placement”). On September 22, 2020, following the approval of the transactions contemplated by the Investment Agreement by the necessary regulatory body, the Company issued to the Investor, for no additional consideration, a total of 150,000 shares of the Company’s newly-designated Series B-2 Convertible Preferred Stock, par value $0.0001 per share (the “Series B-2 Preferred Stock”). On September 25, 2020 (the "Exchange Date"), the Investor elected to exchange the shares of the Company’s Series B-1 Convertible Preferred Stock and Series B-2 Preferred Stock held by it for a total of 150,000 shares of the Company’s newly-designated Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”). Accordingly, effective as of the Exchange Date, the Company issued 150,000 shares of Series B Preferred Stock to the Investor and all of the shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock held by the Investor were cancelled. No shares of Series B-1 Preferred Stock or Series B-2 Preferred Stock are outstanding as of June 30, 2021.
The Series B Preferred Stock ranks senior to the shares of the Company’s common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series B Preferred Stock has a liquidation preference of $1,000 per share (the “Stated Value”). Holders of the Series B Preferred Stock are entitled to a cumulative dividend at a rate of 16% per annum, of which 50% is payable in cash and 50% is payable in kind until the first anniversary of the Closing Date, after which 50% will be payable in cash, 37.5% will be payable in kind, and the remaining 12.5% will be payable in cash or in kind, at the Company’s option, subject in each case to adjustment under certain circumstances. Dividends on the Series B Preferred Stock are cumulative and payable quarterly in arrears. All dividends that are paid in kind will accrete to, and increase, the Stated Value. The applicable dividend rate is subject to increase by 2% per annum during any period that the Company is in breach of certain provisions of the applicable Certificate of Designation of the Preferred Stock. The Series B Preferred Stock has been classified as temporary equity as it may be contingently redeemable in the event of a change of control, which is outside of the Company's control.
Associated with the Series B Preferred Stock, the Company paid dividends of $3.3 million in kind and $3.1 million in cash during the three months ended June 30, 2021. The Company paid dividends of $6.3 million in kind and $6.1 million in cash during the six months ended June 30, 2021. The Company paid no dividends during the three and six months ended June 30, 2020 associated with the Series B Preferred Stock. As of June 30, 2021 and December 31, 2020, the Company had no accrued dividends.
The Series B Preferred Stock is convertible into Common Stock at the election of the holder at any time at an initial conversion price of $5.00 (the “Conversion Price”). The Conversion Price is subject to customary adjustments, including for stock splits and
other reorganizations affecting the Common Stock and pursuant to certain anti-dilution provisions for below market issuances. As of June 30, 2021 and December 31, 2020, the maximum number of shares of common stock that could be issued upon conversion of the outstanding shares of Series B Preferred Stock was approximately 31.2 million and 31.0 million shares, respectively.
During the six months ended June 30, 2021, the Company redeemed 4,954 shares of Series B Preferred Stock for $5.3 million. The below table outlines the change in Series B Preferred Stock during the six months ended June 30, 2021 and the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B-1 Convertible Preferred Stock
|
Series B-2 Convertible Preferred Stock
|
Series B Convertible Preferred Stock
|
|
(in thousands)
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Balance at December 31, 2019
|
—
|
|
$—
|
—
|
|
$—
|
—
|
|
$—
|
|
Issuance of preferred stock
|
150
|
|
150,000
|
150
|
|
—
|
—
|
—
|
|
Exchange to Series B preferred stock
|
(150)
|
|
(150,000)
|
(150)
|
|
—
|
150
|
|
150,000
|
|
Issuance-related expenses
|
—
|
|
—
|
—
|
|
—
|
—
|
|
(11,516)
|
|
In kind dividend
|
—
|
|
—
|
—
|
|
—
|
—
|
|
5,244
|
|
Balance at December 31, 2020
|
—
|
|
—
|
—
|
|
—
|
150
|
|
143,728
|
|
Redemption of shares
|
—
|
|
—
|
—
|
|
—
|
(5)
|
|
(5,330)
|
|
In kind dividend
|
—
|
|
—
|
—
|
|
—
|
—
|
|
6,268
|
|
Balance at June 30, 2021
|
—
|
|
$—
|
—
|
|
$—
|
145
|
|
$144,666
|
In connection with the consummation of the Investment Agreement, the Company and the Investor entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated as of July 27, 2020. The Registration Rights Agreement provides that the Company will use its commercially reasonable efforts to prepare and file a shelf registration statement with the SEC no later than the first business day following January 27, 2022, and to use its commercially reasonable efforts to cause such shelf registration statement to be declared effective as promptly as is reasonably practicable after its filing to permit the public resale of registrable securities covered by the Registration Rights Agreement. The registrable securities generally include any shares of the Company’s common stock into which the Series B Preferred Stock is convertible, and any other securities issued or issuable with respect to any such shares of common stock by way of share split, share dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise.
Common Stock
The authorized common stock of the Company consists of 400.0 million shares with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of June 30, 2021, there were 52.1 million shares of common stock outstanding.
Warrants
On July 31, 2020, all outstanding warrants, consisting of warrants to purchase 16.0 million shares of the Company’s common stock outstanding at a strike price of $11.50, expired. Of the 16.0 million warrants, 9.8 million were issued as part of the units sold in the Company's initial public offering in February 2014 (1.2 million warrants were subsequently repurchased during 2015) and 6.2 million warrants were sold in a private placement at the time of such public offering.
Series A Preferred Stock
In connection with and as a condition to the consummation of the Business Combination, the Company issued R&H one share of Series A Preferred Stock. R&H, voting as a separate class, is entitled to appoint one director to the Company’s board of directors for so long as R&H beneficially holds 10% or more of the aggregate amount of the outstanding shares of common stock and non-voting common stock of the Company. The Series A Preferred Stock has no other rights.
ATM Facility
In December 2018, the Company filed a shelf registration statement (File No. 333-229002) (the “Form S-3 Shelf”) with the Securities and Exchange Commission, that became effective in February 2019. On June 25, 2020, the Company established an at-the-market offering facility (the “ATM Facility”) under the Form S-3 Shelf, with Virtu Americas LLC, acting as sales agent with
support from H.C. Wainwright & Co and Roth Capital Partners. The Company’s board of directors approved sales of up to $30,000,000 maximum aggregate offering of the Company’s common stock under the ATM Facility. Effective as of August 7, 2020, the Company suspended sales under its ATM Facility, in light of the Company’s recent completion of the Refinancing and current market conditions. No sales were effected pursuant to the ATM Facility. Effective as of August 10, 2021, the ATM Facility was terminated, and no future issuances will occur under the ATM Facility.
16. Stock-based Compensation
The Company's stock based compensation is in accordance with the Company's amended 2015 Incentive Compensation Plan (the “Plan”), pursuant to which the Compensation Committee of the Company is authorized to grant up to 7.2 million shares to officers and employees of the Company, in the form of equity-based awards, including time or performance based options and restricted stock. In addition, the Company may grant cash-settled awards, including stock-appreciation rights (SARs) and phantom stock awards.
In June 2019, the Company's shareholders approved the 2019 Employee Stock Purchase Plan (the "ESPP"), which was effective July 1, 2019. 500,000 shares of common stock are reserved for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. The ESPP provides for six-month offering periods beginning January 1 and July 1 of each year, and each offering period consists of a six-month purchase period. On each purchase date, eligible employees may purchase the Company's common stock at a price per share equal to 85% of the lesser of (1) the fair market value of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. As of June 30, 2021, 406,476 shares had been issued under the ESPP.
Stock compensation expense for equity-classified and liability-classified awards was $0.3 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively. Stock compensation expense for equity-classified and liability-classified awards was $1.2 million and $1.8 million for the six months ended June 30, 2021 and 2020, respectively. Stock compensation expense is recognized in cost of goods sold, selling, general and administrative expenses and research and development expenses. At June 30, 2021, there was $7.3 million of unrecognized compensation cost relating to outstanding unvested equity instruments expected to be recognized over the weighted average period of 2.4 years.
During the three months ended June 30, 2021, the Company granted the following share-based awards to members of management and employees. These awards will be settled in shares of the Company's common stock and are equity-classified. The grant date fair value of the time-based award will be recognized on a straight-line basis over the vesting period. The grant date fair value of the performance-based award will be recognized on a straight-line basis over the vesting period based on the probability of achieving the performance condition. The performance-based restricted stock units each have a performance period that ends on December 31, 2023.
|
|
|
|
|
|
|
|
(in thousands)
|
Number of shares
|
|
Time-based restricted stock units
|
1,308
|
|
|
Performance-based restricted stock units
|
808
|
|
|
Stock options
|
545
|
|
|
Total
|
2,661
|
|
The stock options were valued with a Black-Scholes option pricing model using the assumptions in the table below. The expected life was estimated using the simplified method. Based on these assumptions, the grant-date fair value of the stock options was estimated to be $1.38.
During the three months ended June 30, 2021, the Company also granted the following share-based awards to members of management employed in certain countries outside of the United States. These awards will be settled in cash and are liability-classified. Therefore, the fair value of these liability-classified awards will be re-measured on each balance sheet date. The performance-based phantom shares each have a performance period that ends on December 31, 2023.
|
|
|
|
|
|
|
|
(in thousands)
|
Number of shares
|
|
Time-based phantom shares
|
35
|
|
|
Performance-based phantom shares
|
13
|
|
|
Total
|
48
|
|
17. Earnings Per Share
Basic loss per share is calculated by dividing net loss attributable to AgroFresh Solutions, Inc. common stockholders by the weighted average number of common shares outstanding for the period. The Company had a loss for the three and six months ended June 30, 2021 and 2020. Therefore, the effects of stock-based awards including options, restricted stock, restricted stock units and warrants outstanding at June 30, 2021 and 2020, respectively, have not been included in the computation of diluted loss per share because their inclusion would have been anti-dilutive.
The following is a reconciliation of the weighted-average common shares outstanding used for the computation of basic and diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Basic weighted-average common shares outstanding
|
51,348
|
|
50,758
|
|
|
51,191
|
|
50,647
|
|
|
|
|
|
|
|
|
|
Effect of dilutive options, restricted stock, and restricted stock units
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Diluted weighted-average shares outstanding
|
51,348
|
|
50,758
|
|
|
51,191
|
|
50,647
|
|
Securities that could potentially be dilutive are excluded from the computation of diluted loss per share when a loss from continuing operations exists, when the exercise price exceeds the average closing price of the Company's common stock during the period, or for contingently issued shares, if the contingency is not met at the end of the reporting period, because their inclusion would result in an anti-dilutive effect on per share amounts.
The following represents the weighted average number of shares that could potentially dilute basic earnings per share in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
Convertible preferred stock
|
30,591
|
|
—
|
|
|
30,810
|
|
—
|
|
|
Stock-based compensation awards(1):
|
|
|
|
|
|
|
Stock options
|
899
|
|
861
|
|
|
849
|
|
862
|
|
|
Restricted stock awards and restricted stock units
|
2,655
|
|
1,268
|
|
|
2,161
|
|
930
|
|
|
|
|
|
|
|
|
|
Warrants:
|
|
|
|
|
|
|
Private placement warrants
|
—
|
|
6,160
|
|
|
—
|
|
6,160
|
|
|
Public warrants
|
—
|
|
9,823
|
|
|
—
|
|
9,823
|
|
(1) SARs and Phantom stocks are payable in cash so will therefore have no impact on number of shares.
18. Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign income taxes. The effective tax rates for the periods ended June 30, 2021 and June 30, 2020, reflect the Company’s expected tax rate on reported income (loss) from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in the U.S. and various other jurisdictions outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the Company’s earnings and the applicable tax rates in the various jurisdictions where the Company operates.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in the U.S. The CARES Act included tax changes and financial aid designed to protect the American people from the public health and economic impacts of COVID-19. The tax changes included allowing net operating losses to be carried back five years, suspending the 80% of taxable income limitation on the use of net operating losses, an increase of the 30% of EBITDA limitation on the deduction of interest expense from 30% to 50%, excluding any grant income associated with forgiven PPP loans, and the acceleration of the refund for alternative minimum tax credits granted under the 2017 Tax Cuts and Jobs Act (“TCJA”). Most significant to the Company are the modifications on the limitation on business interest deductions for tax year 2020, allowing an increase for
deductible interest expense in the U.S. In addition, the grant income associated with the PPP loans was non-taxable income in the U.S. for tax year 2020.
The Company's U.S. operations have incurred cumulative taxable losses through June 30, 2021. The Company’s U.S. net operating loss carry forwards and carry forwards of other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The utilization of the tax attributes have become restricted because of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This limits the amount of the tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, was determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Please refer to Note 3 - Related Party Transactions regarding the ownership change in the quarter ended September 30, 2020. The Company completed a Section 382 study and determined the ownership change gave rise to the restrictions that will limit the realizability of certain U.S. tax attributes and built-in losses related to future intangible amortization tax deductions. These limitations apply to the corresponding tax attributes and built-in losses incurred before the ownership change.
The effective tax rate for the six months ended June 30, 2021 differs from the U.S. statutory tax rate of 21%, primarily because of changes in valuation allowance positions related to the United States and certain foreign jurisdictions and by foreign exchange currency gains and losses, offset by certain non-taxable items. For the three months ending June 30, 2021, the largest change in valuation allowance positions was a tax expense for deferred tax assets that were no longer deemed to be realizable. The tax expense adversely affected the effective tax rate due to the Company’s consolidated pre-tax losses.
The Company's effective tax rate for the three and six months ended June 30, 2021 was (0.8)% and (27.6)%, respectively, compared to the effective tax rate for the three and six months ended June 30, 2020 of (3.9)% and 13.5%, respectively.
19. Segment Information
The authoritative guidance for disclosures about segments of an enterprise establishes standards for reporting information about segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. We currently operate and manage our business as two operating segments. Our chief operating decision-makers allocate resources and assess performance of the business for each segment. Accordingly, we consider ourselves to have two operating and reportable segments (i) AgroFresh core and (ii) Tecnidex. AgroFresh core business is providing produce preservation and waste reduction solutions for growers and packers. Its products include SmartFreshTM, HarvistaTM and FreshCloud. Tecnidex is a provider of fungicides, disinfectants and coatings. Its revenues primarily relate to sales of these products, as well as equipment, in the EMEA and Latin America region.
Our chief operating decision-makers do not evaluate operating segments using asset or liability information. The following table presents a breakdown of our revenues and gross profit based on reportable segments for the three and six months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2021
|
2020
|
|
2021
|
2020
|
|
AgroFresh Core
|
|
|
|
|
|
|
Revenues
|
$17,931
|
$16,738
|
|
$51,623
|
$45,380
|
|
Gross Profit
|
14,130
|
12,402
|
|
41,765
|
34,797
|
|
Tecnidex
|
|
|
|
|
|
|
Revenues
|
3,993
|
3,244
|
|
9,293
|
7,625
|
|
Gross Profit
|
690
|
1,127
|
|
1,733
|
3,227
|
|
Total Revenues
|
$21,924
|
$19,982
|
|
$60,916
|
$53,005
|
|
Total Gross Profit
|
$14,820
|
$13,529
|
|
$43,498
|
$38,024
|
20. Commitments and Contingencies
The Company is currently involved in various claims and legal actions that arise in the ordinary course of business. The Company has recorded reserves for loss contingencies based on the specific circumstances of each case. Such reserves are recorded when it
is probable that a loss has been incurred as of the balance sheet date and can be reasonably estimated. Although the results of litigation and claims can never be predicted with certainty, the Company does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company’s business, financial condition or results of operations.
On October 14, 2019, the Company was awarded a verdict of $31.1 million in damages, related to, among other things, trade secret misappropriation and willful patent infringement, in its litigation against Decco Post-Harvest, Inc. ("Decco") and Decco's parent company, UPL Limited. The award was subsequently reduced by $18 million in connection with post-verdict review by the Court. During the six months ended June 30, 2021, the lawsuit was settled, paid and is considered closed.
Purchase Commitments
The Company has various purchasing contracts for contract manufacturing and research and development services which are based on the requirements of the business. Generally, the contracts are at prices not in excess of current market price and do not commit the business to obligations outside the normal customary terms for similar contracts.
21. Fair Value Measurements
Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the fair value of the Company's financial instruments that are measured at fair value on a recurring basis as of June 30, 2021.
|
|
|
|
|
|
|
|
|
(in thousands)
|
Level 3
|
|
|
Liability-classified stock compensation (1)
|
$197
|
|
The following table presents the fair value of the Company's financial instruments that are measured at fair value on a recurring basis as of December 31, 2020.
|
|
|
|
|
|
|
|
(in thousands)
|
Level 3
|
|
Liability-classified stock compensation (1)
|
$282
|
(1) The fair values of performance-based phantom shares granted in 2019 and 2020 were estimated using a Monte Carlo simulation pricing model with the assumptions described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Grant date fair value
|
$1.70
|
—
|
$7.28
|
|
Risk-free interest rate
|
0.27%
|
—
|
2.39%
|
|
Expected life (years)
|
2.71
|
—
|
2.75
|
|
Estimated volatility factor
|
65.1%
|
—
|
69.9%
|
|
Expected dividends
|
None
|
There were no transfers between Level 1 and Level 2 and no transfers out of Level 3 of the fair value hierarchy during the six months ended June 30, 2021.
At June 30, 2021, the Company evaluated the amount recorded under the Amended Term Loan and determined that the fair value was approximately $264.9 million. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.
Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis
The following table presents the changes during the periods presented in our Level 3 financial instruments that are measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
(in thousands)
|
Liability-classified stock compensation
|
|
Balance, December 31, 2020
|
$282
|
|
Stock compensation activity
|
(85)
|
|
|
|
|
|
Balance, June 30, 2021
|
$197
|
22. Other Income
During the three months ended June 30, 2021 and 2020, the Company had other expense of $0.05 million and $0.01 million, respectively. During the six months ended June 30, 2021 and 2020, the Company had other income of $14.4 million and $1.5 million, respectively, related to the receipt of proceeds from the settlement of litigation matters.
23. Correction of Prior Period Errors
As previously disclosed in Note 24 to the Company’s consolidated financial statements as of and for the year ended December 31, 2020, management of the Company identified an immaterial accounting error in the Company’s previously reported unaudited interim condensed consolidated financial statements related to the accounting for the Company’s NCI. As a result, the accompanying unaudited interim condensed consolidated financial statements and related notes hereto for the three and six months ended June 30, 2020 have been revised to give effect to the correction of this error. The correction of this error resulted in a reclassification of the carrying value of the NCI from previously reported permanent equity to temporary equity as of June 30, 2020, and a charge to previously reported additional paid-in capital to increase the carrying value of the Redeemable NCI during the three and six months ended June 30, 2020 by $0.3 million and $0.5 million, respectively, which has been applied as an adjustment to previously reported net (loss) income attributable to AgroFresh Solutions, Inc. in the determination of basic and fully diluted net (loss) income per share attributable to AgroFresh stockholders for the three and six months ended June 30, 2020.