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Edited Transcript of AGFS earnings conference call or presentation 8-Aug-19 12:00pm GMT

Q2 2019 AgroFresh Solutions Inc Earnings Call

PHILADELPHIA Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of AgroFresh Solutions Inc earnings conference call or presentation Thursday, August 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graham G. Miao

AgroFresh Solutions, Inc. - Executive VP & CFO

* Jordi Ferre

AgroFresh Solutions, Inc. - CEO & Director

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Conference Call Participants

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* Amit Dayal

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Benjamin David Klieve

National Securities Corporation, Research Division - Analyst

* Gerard J. Sweeney

ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Jeff Sonnek

ICR, LLC - SVP

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Presentation

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Operator [1]

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Good morning, and welcome to the AgroFresh Solutions Second Quarter 2019 Conference Call. (Operator Instructions)

Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Sonnek, Investor Relations at ISR (sic) [ICR]. Sir, please go ahead.

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Jeff Sonnek, ICR, LLC - SVP [2]

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Thank you, and good morning. Today's presentation will be led by Jordi Ferre, Chief Executive Officer; and Graham Miao, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events.

Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures. Please refer to the tables included in the slides that accompany this presentation as well as the press release, which can be found on the Investor Relations section of our website, agrofresh.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures.

I would now like to turn the call over to Jordi Ferre.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [3]

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Thank you, Jeff, and good morning, everyone. Please turn to Slide 3. I am pleased to report the completion of a strong first half of 2019. We were able to generate strong second quarter revenue growth of 15%, which supported first half revenue growth of 6% over the prior year periods. Adjusted EBITDA grew 57% for the second quarter and 41% for the first half. The improved second quarter performance was expected due to some harvest delays that we highlighted during our first quarter earnings call.

Organic product expansion and capitalizing on cross-selling opportunities across our global footprint are key elements of our diversification strategy. To this end, we continued to make progress this quarter by generating strong organic growth within our Harvista, Tecnidex and FreshCloud solutions. Our core SmartFresh solutions was flat for the first half of 2019 versus the prior year, which we view as very encouraging in spite of a 1% decrease in the overall Southern Hemisphere apple crop.

From a crop diversification perspective, revenues generated by apples in the second quarter were 65% versus 71% for the same period a year ago. For the trailing 12-month period ended June 30, 2019, we generated 68% of our revenues in the Northern Hemisphere, while the Southern Hemisphere represented 32%. Europe represents our largest region at 41% of our global revenue mix. As we look toward to the future, we continue to focus on driving sustainable growth through a broader and more diversified product portfolio and crop reach, while optimizing our cost base. We should also see improvement reduction of nonrecurring expenses after the fourth quarter of this year as the MirTech litigation is set for trial commencing October 7.

Turning to Slide 4. SmartFresh revenue increased low single digits in the second quarter of 2019 versus the prior year period in spite of a slight decline in the Southern Hemisphere apple crop versus a year ago. Our SmartFresh growth was supported by application into other crops, such as kiwi in Chile and persimmon in South Africa, which is consistent with our diversification strategy that maximizes our match global registration portfolio. Offsetting this growth was contraction within pears, particularly in South Africa, which was negatively impacted by lower than normal yields, which we mentioned during the first quarter earnings call. EthylBloc, which is utilized to preserve cut flowers, continued to perform well this quarter, up 14% versus the same period last year, driven by the recent registration of EthylBloc Sachets in Canada, following its approval in the Netherlands during the first quarter.

Finally, a few comments on sustainability. During the second quarter, we concluded an independent sustainability study on the impact that SmartFresh has had in the United States since its launch in 2002, which yielded some very compelling takeaways on the positive impact we are having on the environment. SmartFresh has diverted more than 250,000 tons of apple waste, equating to water savings of more than 800 million gallons. SmartFresh has improved the sustainability of the apple supply chain by taking more than 800,000 tons of carbon dioxide out of the atmosphere, which is equivalent to the emissions from 170,000 cars.

SmartFresh has also made apples available year-round in the United States and has lowered reliance on carbon-intensive imports. We are proud of our leadership position in the post-harvest industry, and this requires us to have greater awareness of our impact within the industry and ultimately lead through greater stewardship of our resources. The company next assessments of its ongoing sustainability initiative will look at SmartFresh impact across our other significant global markets, and we look forward to sharing those conclusions.

Turning to Slide 5. Diversifying our core business to a broader crop and product base is central to our operating strategy, and our second quarter performance is indicative of how the complexion of the business has changed over the past year as we focus on growing our product portfolio. For the trailing 12 months ended June 2019, our apple mix measured as a percentage of total revenue was 67% compared to 76% in the prior year trailing 12-month period. This has been the result of a concerted effort to drive our non-apple penetration, which has allowed us to grow ourselves in nearly every crop that we address. The primary element in our ability to generate sales growth in these individual crops is our expanding regulatory portfolio, and our ProTabs solution is a significant contributor to our recent success. In fact, we recently obtained regulatory approvals of ProTabs in crops such as pear, plum, persimmon, banana, peach, nectarine, apricot, melon and kiwifruit, in Lebanon, Greece and Poland.

Please turn to Slide 6. Harvista is our near-harvest synergistic solution that complements SmartFresh. Harvista helps slow respiration and the ripening process while apples and pears are still on the tree, promoting fruit firmness and quality for an extended period. It also provides other significant benefits such as yield enhancement for other high-value crops, such as cherries and blueberries, which we have started to address with our growing registration portfolio. For the first half of 2019, sales of Harvista increased 90% versus the prior year period. As we have stated many times before, the growth of Harvista is impacted by timing of new regulatory approvals.

In January of this year, we received approval of Harvista in Australia, which generated new revenue during the first half of 2019. We will continue to pursue a regulatory approval pipeline, and we are targeting New Zealand, Brazil and especially the European Union, where the product has generated a lot of interest from our customers. Additionally, we saw growth for Harvista in all existing markets, including Argentina, Chile, South Africa and the United States. We continue to expand our diversification efforts for Harvista beyond apples and pears. And after the recent approval for its use in blueberries in Chile and cherries in the United States, we are excited to roll the program into other markets.

Turn to Slide 7. Tecnidex was acquired in December 2017 and has become the centerpiece of our citrus division, providing AgroFresh with crop and technology diversification via an established portfolio of fungicides, coatings and waxes. We estimate that citrus represents approximately 60% of the total global post-harvest market and remains a significant growth opportunity for AgroFresh. For the second quarter, our Tecnidex business grew 29% versus the same period last year and 9% in the first half of 2019 versus the prior year period. On a constant currency basis, sales increased 17% during the first half, driven by strength in the core European market as well as material growth in Latin America, which was the result of our continued rollout of the Tecnidex portfolio through our commercial infrastructure. We believe that there continues to be significant opportunity for further penetration across markets as customers come to appreciate our expanded presence from a product and crop perspective.

Please turn to Slide 8. We have been marketing RipeLock for a number of years to extend yellow life of bananas by an additional 2 to 6 days, reducing shrink for the retailer. In 2018, we rolled out RipeLock across the entire system of one of the top 10 retailers in the United States. It was the largest customer implementation we have launched to date, and in the process, we learned that some of our program fundamentals needed to be adjusted. Consequently, RipeLock revenue decreased in the second quarter, and we are relaunching a new simplified version of the program that delivers an estimated minimum of 2 extra days of yellow life to retailers.

We have already begun 8 new trials in the United States and Europe for this new protocol, and we continue to generate leads with potential customers. Beyond bananas, we have redefined RipeLock as the ethylene control solution for all crops that have a long supply chain and do not utilize controlled atmosphere storage rooms, treated with SmartFresh, that are commonplace within the apple and pear market. Our current focus is on opportunities within avocados, broccoli, melons and other tropical products. For example, packers and distributors from Mexico, Chile and Peru have started using our solution to export avocados for long-distance shipments to Europe and India.

At the same time, we have initiated RipeLock trials with major United States avocado marketers to extend ready-to-eat shelf life for food service and retailers. Additionally, we continue to see an interest from retailers to offer fruits like plums and peaches with more flavor and maturity and distributors have started looking at RipeLock to meet this requirement.

Please turn to Slide 9. Last year, we launched FreshCloud, the digital platform that provides insightful real-time data about produce freshness and projected shelf life that helps customers along the fresh produce supply chain maximizing their return by making better and more educated inventory decisions. During the second quarter 2019, our early momentum with FreshCloud continued and was driven by our Storage Insights model, which we are building upon. In June, we bolstered our technical capabilities through a strategic collaboration with Zest Labs, a public agtech company based in Silicon Valley that has developed a number of real-time data-driven solutions to monitor freshness of fruit in transit.

Through this collaboration, AgroFresh will apply its industry expertise to offer the Zest pallet-level freshness management platform for fresh produce as part of our FreshCloud Transit Insights solutions. Zest technology is fully developed and ready for use. And only a few weeks since our engagement, we have already generated 3 active customer projects and wide interest in export markets, such as Chile, Peru and New Zealand. FreshCloud is a journey into the future of freshness, and we plan to continue adding and improving its technology as well as link insights collected across the platform to provide valuable and actionable information to the fresh produce industry.

I'll now let Graham speak to some of the financial highlights. Graham?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [4]

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Thank you, Jordi, and good morning to everyone on the call. Please turn to Slide 11. Let me review the financial highlights for the second quarter of 2019. The second quarter completes our Southern Hemisphere season. And we think it's most valuable to look at the business in halves versus quarters to consider seasonal fluctuations that can shift sales between the first and the second quarters.

Net sales increased 15% to $21.2 million for the 3 months ended June 30, 2019, as compared to net sales of $18.4 million for the 3 months ended June 30, 2018. Excluding the impact of changes in foreign currency exchange, which reduced the revenue by $0.5 million compared to the second quarter of 2018, revenue grew approximately 17%. The increase in second quarter net sales was driven by growth in our core business, which includes Harvista, Tecnidex and SmartFresh.

Harvista sales growth of $1.5 million in the second quarter was a major contributor, as was Tecnidex which grew 29% organically year-over-year in the second quarter, and when excluding adjustments for foreign currency grew 36%.

As Jordi noted earlier, the delayed harvest in many of our key Southern Hemisphere markets shifted SmartFresh revenue from the first quarter into the second quarter this year compared to the prior year. We also experienced growth in our EthylBloc product and in FreshCloud, the company's newest product offering. For the first half of 2019, net sales were $60.1 million, an increase of 6% versus the prior year period. Foreign exchange movements reduced revenue by $1.1 million for the first half and excluding this impact, revenue increased approximately 8%.

Our growth for the first half was balanced across all of our regional markets. While that business is significantly weighted toward the Southern Hemisphere in the first half, we augment that growth with increased traction across all of our regions, North America, Europe and Asia, as we expanded our presence in these markets with products such as Harvista, Tecnidex and EthylBloc.

Please turn to Slide 12, where we'll discuss margins and operating expenses. Our gross margin was stable at 70.3% in the second quarter of 2019 versus 70.7% in the second quarter of 2018. The change was in line with our expectations and related to a sales mix shift, favoring Harvista and Tecnidex during the quarter. These same trends affected our first half of 2019, with gross profit margin at 70.7% this year compared to 71.4% in the year ago period. While our gross margin profile continues to evolve based on the changing sales mix, we are confident that AgroFresh possesses the post-harvest industry's leading gross margin profile. This is supported by our unmatched service platform and our solution-based infrastructure, which allows for an advantageous asset-light operating model.

From an expense perspective, we continue to focus on cost optimization to create greater efficiency for our business and better align our operating structure with our revenue base. During the second quarter 2019, we've built upon the savings we began to realize at the end of 2018. We expect these initiatives to continue to generate benefits into the latter parts of 2019.

Now let me talk about specific expense items. Research and development expenses were $3.3 million in the second quarter of 2019, down from $3.7 million in the prior year period. The decrease was primarily driven by timing of projects. For the first half of 2019, research and development expenses increased $0.4 million to $7.2 million, which included $0.5 million of severance costs associated with ongoing cost optimization initiatives. We expect that our ongoing R&D spend will be consistent with the first half spend on an annualized basis, will further support our initiatives, which drive continued diversification beyond apples.

Second quarter selling, general and administrative expenses, SG&A, were $16.1 million on a reported basis as compared to $15.6 million in the prior year period. SG&A expenses included $2 million in the current quarter and $0.9 million in the prior year period of nonrecurring costs, such as M&A and litigation expenses along with severance. Excluding these items, SG&A expenses decreased approximately 4% over the same period last year. For the first half of 2019, SG&A expenses, as reported, were essentially flat at $32 million, which included nonrecurring costs of $5.2 million in the current year and $3 million in the prior year. Excluding these items, SG&A expenses decreased 7.4% over the same period last year, driven by ongoing cost optimization initiatives, which is consistent with our goals.

Please turn to Slide 13. Net loss was $22.3 million in the second quarter versus a net loss of $18.4 million in the year ago period. Excluding the $2.5 million loss on foreign currency exchange in the second quarter of 2019 and the $3.3 million gain in the year ago period, net loss on a year-over-year basis improved 9%. Adjusted EBITDA improved 57% to a loss of $1.4 million as compared to a loss of $3.3 million in the second quarter of 2018. For the first half of 2019, adjusted EBITDA improved 41% to $11.1 million, driven by higher sales coupled with lower operating expenses after adjusting for nonrecurring items.

Turn to Slide 14. Cash provided by operations was $6.1 million for the first half of 2019 compared to a use of $3.8 million in the prior year period. The year-over-year $10 million improvement was primarily driven by lower interest expense payments of $5.5 million, which was timing related as well as improvement in overall working capital performance, particularly with an emphasis on collections, inventory management and expense control. Capital expenditure were $3.3 million for the first half of 2019, compared to $2.3 million in the year-ago period. We expect our annual capital expenditures to range from 3% to 4% of sales, consistent with our asset-light business model.

From a balance sheet perspective, cash as of June 30, 2019, was $35.9 million. Total debt was $410.2 million, with no meaningful maturities until July 2021. Our revolver was undrawn as of June 30, 2019, and our total liquidity was $48 million.

Looking ahead, for the second half of 2019, we will continue to focus on delivering organic sales growth and optimizing our cost base. In addition, we are working diligently to improve our balance sheet, particularly the capital structure. We recognize that our leverage is an obstacle, but that does not mean it's not without solutions. We are actively working through our process of evaluating all possible alternatives. With our business in a very strong global position, I am confident that we will solve this problem before our debt becomes current in July 2020. Our capital allocation priorities are to, first and foremost, deleverage the balance sheet, then, invest in organic growth, and finally, pursue selective M&A that's complementary to our global post-harvest solutions platform and accretive to EBITDA.

Now I'll turn the call back to Jordi for his closing remarks before opening the call to Q&A.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [5]

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Thank you, Graham. Please turn to Slide 15. We are very pleased with the strong performance this first half, which demonstrates the resilience of our core business and the benefits of our diversification initiatives to expand into new regions and crops with our growing portfolio of post-harvest solutions. During the second half of 2019, we expect to deliver organic net sales growth and are committed to optimizing our cost base without sacrificing the high-touch solutions-based nature of our business, which has immense value.

As I approach my 3rd anniversary as CEO of AgroFresh, I am energized by the significant improvements we have made to its business and the commitment of our global team to achieve sustainable growth. In my different discussions with customers around the world, it is clear to me that they are also starting to recognize the way in which our business has improved to better serve their needs. And I am enthusiastic with our leadership and innovation that is necessary in the post-harvest market for us all to achieve our goals. However, Graham and I understand that there is the need to improve our balance sheet in order to support our long-term growth objectives. We are working diligently to address these obstacles and appreciate your support.

With that, operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Gerry Sweeney with ROTH Capital.

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Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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Nice quarter on the growth and expense controls. I just want to dig in or actually maybe clarify a couple of points. In the Southern Hemisphere, it sounds like the SmartFresh core product is stable to up, considering a smaller harvest, and it appears that margins were at least -- were stable in that business as well. Is that a fair sort of quick overview of the business down there?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [3]

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It is a very fair and accurate view of the business. Yes, Gerry.

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Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Okay. Now that we're switching up to the Northern Hemisphere, do you have any view to what's happening, maybe the size of the harvest, conditions and maybe any nuances that we can sort of extrapolate for the rest of the year?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [5]

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Yes. So I do have that, Gerry. And you know let me just certainly say that luckily, we are depending less and less on one crop, but we still have the majority crop is apples for us. So I'm going to take you through the 2 main markets in the Northern Hemisphere, I'm going to start with the U.S. The U.S., there was a couple of estimations in June, we had the U.S. Apple Association that projected growth in overall U.S. about 8% crop, with an 11% increase in the Pacific Northwest. We just heard yesterday from the Washington State Tree Fruit Association that the crop -- their latest estimations on Washington, which is obviously still our largest market is 18%. So I would say to you that we don't know until the crop comes in, but I would say that everything looks optimistic in terms of the crop size in North America and particularly in the Pacific Northwest.

In Europe, we also had estimations yesterday, normally at the beginning of August, the World Apple and Pear Association, WAPA, makes their own estimation about Europe, is much expected. If you look at Europe, it's interesting because if I look at the whole production of Europe, there is a decrease of about 23%. However, that's mostly centered in Poland, which is 44%, and other countries in the east, and we do not do much business in Eastern Europe.

So when we look at the western markets, they are either flat or, in some cases, even increasing versus a year ago. Italy is flat. France is 12% up. Spain is 14% up. Portugal is 16% up. The only -- there, Germany is 17% down, 17. That's the only one of the core markets that seems to be a little bit weak, but I think that will be mainly compensated with production that we see in the other Western Europe markets. So, so far, we are cautiously optimistic about the figures that we see. Obviously, I want to make sure that these are estimations that are official or coming from associations that know about the industry, but we always like to see how the actual season goes. But so far, it looks, I'd say, optimistic.

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Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Got it. And speaking of the transition to other crops other than apples and diversification, obviously, you have Harvista, EthylBloc and products like that. But I think Tecnidex is probably the largest of maybe the diversification revenue per se. Really nice growth in Southern Hemisphere. I know there's probably some different dynamics -- I'm sorry, growth in the Southern Hemisphere. But I think there's some different dynamics in the Northern Hemisphere. But what kind of opportunity for growth do you have for Tecnidex in the second half?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [7]

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I think what we see in Tecnidex second half is to continue approximately with the same rate that you've seen in the first half, which is also consistent with the rate that you saw last year. So you would see a very consistent track record. That's what we expect for our Tecnidex business.

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Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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What's that, is that -- what's driving that? Is that just cross-selling abilities, getting the product out there, more feet on the street per se? Just curious want to dig in a little bit.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [9]

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Well, I think, first of all, we always said that Tecnidex was a very good business, but it was regional in nature, mainly centered around the Mediterranean countries. But we always said that it was a good quality business with good products, good systems and good people. And all we're doing right now is expanding their product range to other markets where we are specifically strong and well, and we have a good presence, right? So if we talk about the southern Hemisphere, a lot of the growth was in Chile. We have a very strong presence in Chile, and we use our reputation, our people and our commercial muscle and technical know-how to be able to actually promote certain products to more customers around the world.

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Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [10]

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Got it. And then probably limited as to what you can say, but on the litigation front, are we still looking at the trial going -- taking place early October? And any estimate on litigation costs, maybe in SG&A that may incur going into this?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [11]

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Sure. Well, as I said, when I was taking you through the business performance, a big component of the nonrecurring expenses in our P&L are related to the litigation that's been going on now for, I would say, come close to 3 years. This is coming to an end, at least a major part of it. As I said in my presentation, the October 7 is the official, its public trial date in Delaware, and there'll be a jury trial, and there will be damages that will be accounted to us. And so therefore, after that, our level of litigation expenses should at least diminish because the bulk of what needed to be done is almost -- most of it is almost behind us, right? So we definitely think that that is going to be -- so I think that that's going to be a positive, obviously, for our P&L in general. I don't know if -- I don't think we ever break down the expenses on the nonrecurring or what litigation is. But as I said, it's a big part of what we put as nonrecurring.

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Operator [12]

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Our next question comes from the line of Ben Klieve with National Securities.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [13]

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So Jordi answered most of the questions I had, but a couple still for you. First of all, nonrecurring items. I am wondering if you can elaborate a bit on the kind of timing and size of payments that you may be expecting to Dow here in the back half of the year.

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [14]

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So this is Graham. Thank you, Ben. The payments, just as a reminder, in the past, AgroFresh paid Dow in terms of the past the transition service, the TSA, the Transition Service Agreement, we no longer make payments to Dow in regard to TSA. AgroFresh today is a completely independently operated public company. So we have our own system, our own organization capabilities.

Now regarding the other component, which you may be referring to is what we call TRA, Tax Receivables Agreement. That was an agreement put in place, revised 1.5 years ago that AgroFresh and Dow would split the tax benefits 50/50. So that's still in place and we are also discussing with Dow in terms of what might be the best approach, an agreement between the 2 companies that -- for the future. So we'll keep you posted as we reach any new conclusion on that regard.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [15]

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Okay, fair enough. And to both of you, I appreciate your comments on the debt position. I am hoping you can elaborate on kind of the near-term outlook here. Over the next few quarters, do you anticipate beyond any -- the modest prepayments that are mandatory, do you anticipate any more significant prepayments or do you think you're going to kind of just keep your excess cash accumulated until you have kind of a clearer picture of what the debt is going to look like beyond 2021?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [16]

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Yes. So we -- as you know that every year we do principal amortization, so we pay down the overall debt principal according to the agreement of 1% a year, which amounted to about $4.3 million a year. So we pay down debt, although every year, in addition, we pay interest expenses. So we are addressing -- we are fully aware that the maturities are coming up, although it's about 2 years away. But our principle is really looking at the capital structure a year earlier. So our expectation is to provide a solution, address the structure before July next year. There are several options, good options available to us, and we'll keep you informed as we reach any conclusions on that.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [17]

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Okay. Fair enough. And congratulations on a really good quarter here.

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Operator [18]

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Our final question comes from the line of Amit Dayal with H.C. Wainwright.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [19]

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Can you talk a little bit about the FreshCloud offering? Last quarter, you indicated you did around $300,000 or shy of $300,000 with around 40 customers. How has that traction continued? And what are your expectations for this offering for the rest of the year?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [20]

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So for the second quarter is continue about the same pace, so at the same level. And this is the first time that we're reporting separate revenue from it. And we continue to expand Northern Hemisphere, the adoption of FreshCloud has been earlier. And so we expect at least the same or even more in the second quarter, and we continue, as you saw with the partnership with Zest, to add capabilities to our platform, which, together with our knowledge of everything to do with our fruit biology, physiology and everything to do with post-harvest supply chain, I think that's a winning formulation. The move to digital is there. And I think we are ahead of the industry in that sense.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [21]

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Understood. On the ForEx side, probably some volatility and pressure continues. Are you doing something to alleviate some of this pressure or are you just going with the flow for now?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [22]

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Yes. So FX, the good news is our -- the current, for this period, the FX mostly is in Argentina. But the good news is about our business in South America, Chile, Brazil, our bidding is U.S. dollar based. And in terms of Argentina, we are in other situations over there. So currently, right now, it's -- although we have natural hedging in place, but the economic environment over there, we're just dealing with as we deal with our business in the situation.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [23]

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Understood. And just last one. Cost-cutting front, are we still looking to optimize certain areas or are we mostly done with cost-cutting efforts?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [24]

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We are on a good trend with -- as we started the cost optimization initiative last year, late last year, and we're seeing good results. And we anticipate the trend will continue for the rest of the year. So we are comfortable with our current cost basis. And of course, we are always looking at opportunities to continue to improve.

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Operator [25]

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(Operator Instructions) And ladies and gentlemen, at this time I'm showing no further questions. I'd like to end the question-and-answer session and turn the conference call back over to Jordi Ferre for any closing remarks.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [26]

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Well, I would just like to, again, thank everybody for the support that you continue to provide, and I want everybody also to rest assured that the management and the whole team at AgroFresh continue to work very hard to make this a continually better business, so thank you.

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Operator [27]

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Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines. Thank you for your participation.