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Edited Transcript of AGFS earnings conference call or presentation 7-Nov-19 9:30pm GMT

Q3 2019 AgroFresh Solutions Inc Earnings Call

PHILADELPHIA Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of AgroFresh Solutions Inc earnings conference call or presentation Thursday, November 7, 2019 at 9:30:00pm 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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* 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 afternoon, and welcome to the AgroFresh Solutions Third Quarter 2019 Conference Call. (Operator Instructions)

At this time, I would like to turn the conference call over to Jeff Sonek, Investor Relations at ICR. Sir, please go ahead.

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Jeff Sonnek, ICR, LLC - SVP [2]

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Thank you, and good afternoon. Today's presentation will be led by Jordi Ferre, Chief Executive Officer; and Graham Miao, Chief Financial Officer. Comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 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 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.

With that, I'd 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 afternoon, everyone. Please turn to Slide 3. Third quarter results are not representative of our expectations for the 2019 Northern Hemisphere season, which extends through the fourth quarter. The season saw a delayed apple harvest in both the United States and Europe, and our third quarter results were exacerbated by a difficult comparison to the prior year, where we faced an earlier-than-normal start to the harvest season.

The shift in sales from September to October this year caused October to become the largest revenue month of the year, which is an anomaly for our business. While our core SmartFresh business was temporarily challenged in the third quarter due to the unforeseen delays, our diversification initiatives that are geared towards growth products such as Tecnidex and Harvista all achieved constant currency growth in the year-to-date period, and we anticipate this momentum will carry through the end of 2019.

Nonetheless, third quarter net sales decreased 29% compared to the prior year period, reflecting the timing shifts in comparison to the early harvest season in 2018. Significant variability in harvest timing is an ongoing reality of our business. In fact, as you may recall, from our first quarter earnings this year, we noted that the Southern Hemisphere experienced a delayed harvest, which shifted sales to the second quarter. The magnitude of the delay on this year's Northern Hemisphere Harvest was greater than normal because it impacted both North America and Europe.

We are encouraged by our October results, and we believe that our full year 2019 net sales will be stable to down in the low single-digit percentage versus the prior year, excluding foreign currency impact. However, we do expect that the positive impact of our ongoing cost initiatives will allow us to achieve an improvement in our adjusted EBITDA margin for full year 2019 versus 2018.

We remain focused on the controllable aspects of our business and are succeeding in our efforts to optimize operating costs. As we mentioned in the previous quarter, we expect to see a reduction of nonrecurring expenses moving forward with the completion of the MirTech litigation in the first half of October. To that end, we are pleased with the jury's favorable verdict against Decco Post-Harvest, Inc. and Decco parent company, UPL Limited, and look forward to resolving this matter permanently.

Turning to Slide 4. SmartFresh experienced a difficult quarter due to a delay of 10 to 14 days in the Northern Hemisphere harvest versus a typical year. Furthermore, the quarterly impact was compounded by last year's comparatively early and short harvest. Considering that most of our revenue in September takes place in the last 2 weeks of the month, the magnitude of change was significant as measured on a quarterly reporting basis as of September 30. They shift ultimately mid-October, our largest sales month of the year.

North America is largely driven by our apple business in the United States, which was significantly impacted by the delay. Despite the harvest delay and a frost in late October, the apple crop in the Pacific Northwest is still expected to grow versus last year. Partially offsetting this growth are challenges in the eastern growing regions in the United States and Canada, which were impacted by some extreme weather events, including hail and high winds brought about by Hurricane Dorian.

Our SmartFresh business is facing weather-driven headwinds in Europe as well. In Europe, the pear crop in Italy and the Netherlands were negatively impacted by a variety of variables, including weather and were comparatively smaller versus the prior year. Similar to conditions in North America, Western Europe is also experiencing a later-than-averaged apple harvest, which is shifting revenue into the fourth quarter. The apple harvest in Italy is ongoing and appears to be smaller versus the prior year. Partially offsetting the lower Italian apple crop were the larger crop sizes in other European markets such as France, Spain, the U.K. and Portugal.

Turning to Slide 5. Diversifying our core business to a broader crop and product base is central to our operating strategy, and we continue to make progress towards this goal. For the trailing 12 months ended September 2019, our apple mix measured as a percentage of total revenue was 7.2% compared to 74.6% in the prior year trailing 12 months period. Our expanding regulatory portfolio is the primary driver for growing our business beyond apples. And we are continually leveraging our expertise to address new markets and new crops such as mangoes and bananas.

During the third quarter, we obtained a number of new regulatory approvals. A great example is the recent approval of SmartFresh in India. India produces approximately 2.5 million metric tons of apples, which is comparable to the crop size of Italy, and the infrastructure there is improving and adopting controlled atmosphere supply chain facilities that necessitate utilization of operational solutions.

Please turn to Slide 6. 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 third quarter, Harvista sales were down modestly versus the third quarter of 2018 due to the harvest delay in North America. While the delay caused a deceleration in the business, we still generated year-to-date growth of 8.5% on a global basis versus the prior year period and anticipate that Harvista will have a positive fourth quarter, making it for a successful 2019.

Harvista future growth will continue to be driven by the timing of new regulatory approvals for our latest formulation of the product, which is more effective and easier for producers to apply. The new formulation is already being used in the United States and Argentina. And as we have mentioned previously, approval of Harvista in Australia drove new revenue during this year's Southern Hemisphere season. Building upon this success, we recently gained additional approvals in Chile and South Africa, 2 established markets, allowing for additional growth opportunities next year.

Looking ahead, we are targeting regulatory approvals in New Zealand, Brazil and the European Union, where the product has generated a lot of interest after some really promising customer trials.

Our regulatory strategy goes beyond regional exposure and also helps drive our diversification strategy. Driving the implementation of the Harvista technology beyond apples and pears to other high-value crops such as blueberries in Chile and cherries in the United States are a great example of this, and we are in the midst of pursuing approval for blueberries in the United States for next year's season.

Turning to Slide 7. Tecnidex is the centerpiece of our citrus business, 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 postharvest market and remains a significant growth opportunity for AgroFresh. On a constant currency basis, Tecnidex sales increased 4.7% during the first 9 months of 2019, driven by a balance of strength across our core European market and emerging Latin American presence, partially offset by some temporary softness in Africa and the Middle East, which we believe will be partially recovered in the fourth quarter.

Our service-oriented approach and an expanded set of solutions to meet diverse customer needs for a broader variety of crops provides us with a significant opportunity to expand our Tecnidex portfolio of solutions to our global customer base. To this end, we recently secured global sourcing with some key suppliers of fungicides that we'll utilize for our Tecnidex solution. Their commitment to expand and support our business on a global basis is an exciting development for next year's citrus season. Additionally, we have also started to test our degreening equipment at some customer facilities in California, which is a significant global citrus market, where we don't currently have a presence.

Please turn to Slide 8. We have continued to move forward with the relaunch of RipeLock's new simplified protocol that delivers an estimated minimum of 2 extra days of banana yellow life to retailers. We are responding to retailers who are looking for ways to enhance the fresh, ready-to-eat offerings on the perimeter of the store. Beyond the retail store display, we are strategically engaging deeper into the supply chain with packers and exporters, leveraging the commercial infrastructure we have in Chile, Brazil, Mexico and Peru to address other crops such as avocados, mangoes and melons for export to Europe and Asia.

We are engaged with retail partners in the United States and Europe in banana trials that will be completed this month and expect confirmation of the rollout soon. We're also making progress with major avocado producers that are testing our in-transit solutions for their respective supply chains. Consequently, we expect RipeLock to be a key growth engine for the coming year.

Please turn to Slide 9. Last year, we launched FreshCloud. The digital platform that provides insightful, real-time data of our produce freshness and projected shelf life. This digital solution helps customers along the fresh produce supply chain maximize their return by making better and more educated inventory decisions. Despite its infancy, our growth trajectory year-to-date remains positive, driven by growth in the United States and Chile, mainly with our storage insights model. We continue to build out our capabilities by adding and improving its technical delivery as well as link insights collected across the platform to provide valuable and actionable information to the fresh produce industry and our global customer base.

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 a good afternoon to everyone on the call.

Please turn to Slide 11. The third quarter marks the beginning of the Northern Hemisphere season. And our experience with the harvest delay is a great example of why we emphasize that investors should consider our business in half versus quarters to take into account seasonal fluctuations that can shift sales between the third and the fourth quarters.

Net sales were $49 million in the third quarter of 2019, a decrease of 29% as compared to net sales of $68.7 million in the prior year period excluding the impact of changes in foreign currency exchange, which reduced the revenue by $1.2 million. Revenue decreased approximately 27% compared to the third quarter of 2018. For the first 9 months of 2019, net sales were $109.1 million, a decrease of 13% or 11% excluding foreign currency impact.

Our growth initiatives, which are focused around Tecnidex, Harvista and FreshCloud all achieved growth for the year-to-date period.

From a regional standpoint, Latin America realized the growth due to increased apple crop size in Argentina and increased penetration in Brazil. However, these positives were not enough to counterbalance the negative impact on the third quarter results due to the delay in harvest timing across the Northern Hemisphere.

Please turn to Slide 12, where we'll discuss margins and operating expenses. Our gross margin was consistent with expectation at 71.6% in the third quarter of 2019 versus 75.7% in the third quarter of 2018. Third quarter margin results was similarly impacted by the harvest delay. This anomaly influenced the sales mix, which in normal season is more heavily weighted toward our higher-margin SmartFresh business. These same trends affected the first 9 months of the year, with gross profit margin at 71.1% this year compared to 73.8% in the year ago period.

While our gross margin profile continuous to evolve based upon our diversifying sales mix, our industry-leading gross margin allows us to continue to invest in R&D and postharvest innovations. This is supported by our service platform and our solutions-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 third quarter of 2019, we built upon the savings we began to realize at the end of 2018, and we expect these initiatives to continue to generate benefits for the remainder of 2019.

Third quarter selling, general and administrative expenses decreased 17.6% to $15 million on a reported basis. SG&A expenses included $1.6 million in the current quarter and the $3.7 million in the prior period of nonrecurring costs, such as M&A, litigation and a severance. Excluding these items, SG&A decreased 7.7% in the third quarter of 2019 over the same period last year. For the 9 months, SG&A expenses were down 6.2% to $47 million and a decrease of 7.5% when excluding nonrecurring costs, such as M&A, litigation and a severance of $7.3 million in the current year and $6.7 million in the prior year, driven by ongoing cost optimization initiatives.

Research and development expenses decreased $0.9 million versus the prior year to $2.6 million in the third quarter of 2019. The decrease was primarily driven by the timing of projects. For the first 9 months of 2019, research and development expenses decreased $0.6 million to $9.7 million versus the prior year period. R&D remains an important component of our strategy to drive continued diversification beyond apples.

Please turn to Slide 13. Net income was $3.3 million in the third quarter versus net income of $3.5 million in the year ago period. On a year-to-date basis, net loss was $31.6 million compared to a net loss of $27.9 million in the prior year period.

Adjusted EBITDA was $20.6 million in the third quarter as compared to $34.6 million in the third quarter of 2018, driven by lower sales, partially offset by improved cost structure. Year-to-date, adjusted EBITDA was $31.7 million, a decrease of $10.8 million or 25.4% versus the prior year period. Despite the third quarter harvest delay and additional factors that Jordi mentioned, we are projecting that we will be able to deliver an improvement in our adjusted EBITDA margin for the full 2019 versus the full year 2018 due to the positive impact of our ongoing cost initiatives.

Turn to Slide 14. Cash used by operations was $8.7 million for the year-to-date period of 2019 compared to a use of $16.2 million in the prior year period. The year-over-year $7.5 million improvement in operating cash flows was primarily driven by better working capital management, particularly with an emphasis on collections and expense control. Capital expenditures were $3.3 million for the year-to-date period 2019 compared to $3.2 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 September 30, 2019, was $18.7 million. Total debt was $407.8 million, with a term loan maturity in July 2021. Our revolver was undrawn as of September 30, 2019, and our liquidity -- total liquidity was $31.2 million.

Looking ahead, we will continue to focus on delivering growth and optimizing our cost base. In addition, we are working diligently to improve our balance sheet, particularly the capital structure. We are actively working through our process of evaluating all possible alternatives. With our business in a very strong global position, I'm confident that we will solve this issue before our term loan becomes current in July 2020, 1 year before its maturity in July 2021.

Now I will 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 pleased with the resilience of our core business despite the unexpected harvest delay in the third quarter and are encouraged by the results of our diversification initiatives to expand into new regions and crops with our growing portfolio of postharvest solution. Our service-oriented approach and proximity to our global customers provide us with a competitive advantage to react quickly to meet the changing needs of the industry. Finally, as Graham stated, we continue to focus on options to reduce our leverage and enhance our flexibility to drive strategic initiatives.

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 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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I was under the impression the Pacific Northwest, which I think is the largest crop in the U.S., was going to be larger this year than last year. But obviously, there are some puts and takes, not only in the U.S., but as well as, I guess, the other Northern Hemisphere countries i.e. Europe. Overall, is the apple market larger, smaller or the same versus last year? Do you have any data on that?

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

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Are you referring yourself, Gerry, to consumption?

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

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No, I'm referring to just the actual harvest size.

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

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Okay. So I think, Gerry, you heard -- so you're right. The Pacific Northwest crop is predicted to be bigger. We said that in the last call, and that continues to be the view. The thing is that it's been a unforeseen delay in the harvest into October in Q4, which is generally speaking unusual, right? So having said that, yes, the Pacific Northwest apple forecast will be larger than last year. In the east of United States, as we mentioned, we're being prudent because we've seen weather impacting and potentially impacting on the downward side the crop.

And in Europe, we -- most of our business is in Western Europe. We have some business in the east. The east, as we said before, was not looking very good, but it's not really that material to us as the Western Europe. Western Europe, we had Italy that is looking to be down, but other crops are going to be up, so it's yet to be seen when the season ends, but it could be about, I would say, difficult to venture on until, as I said, all the season is wrapped up and look at the numbers, but I would expect that it will be probably equal. Yes, the Western side is doing better there.

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

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So I mean the next question was and this -- I mean this whole question was predicated on just your net revenue being flat to down by several basis -- or several -- a few percentage points. If the harvest is equal and the Pacific Northwest was going to be higher, but net-net-net, it was maybe we'll say flat. Are you comfortable with your market share that you are holding today?

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

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Yes. Yes, we are. Yes, we are. In fact, we are -- and I'm going to be cautious here, as I said, the season is not over until the end of the fourth quarter where we potentially see even in the U.S. some extra gains in share. So I think we're regaining some of the share that we lost potentially. And again, we could update better when the season is completely done at the end of the year.

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

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So if you're potentially looking at even market share gain, what would drive revenue flat to down? Is it pricing?

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

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We don't really see any material change in pricing. I think that to be frank with you, Gerry, we're trying to be a little bit cautious here. Because -- I'll tell you why, it's because as you see, there's a lot of unpredictability with weather, et cetera, et cetera, right? So this is the outlook that we see today as I give you, but weather is a little bit out of normal, right, and we want to make sure there's no event. Once sometimes you -- there's a delay in season, you might get into cold weather when the produce is on the trees to give you an example. So we're being very, very cautious here. Not to give you a completely upbeat outlook based on the unpredictability that we are facing. But as I -- we said before, that's why we try to make some of the areas of our business that we can control more predictable. And this is, on the other hand, that we said that we see an improvement in adjusted EBITDA based on our cost initiatives.

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

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Got it. No, that's fair. [And I get the tag and ag as] drivers that are outside of your control. So I just want to make sure you're comfortable with market share and pricing. So that's...

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

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We are. We are. We don't see any materiality at this point in time, we would say it otherwise. But again, when the season is done, we will be able to do a better balance, but if we have seen anything that was worth pointing out, we would have mentioned during this call.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

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I mean is it fair to say you would have seen any pricing degradation by this time already? I mean we are -- it is November, right? So I mean if you haven't seen it, chances are you're not going to see it?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [13]

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Certainly. We haven't seen that in our (inaudible).

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14]

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I don't think you can talk that much about Decco and UPL. But the one question I had and this is going off a little bit of memory and just reading a lot of legal documents. I believe Decco was enjoined from selling any -- one MCP product at least during the trial, and they've been out of the market for that reason. With the trial entering its end phases, are they going to be able to enter the market in any shape, form or fashion? I know there's patent issues, but there's a lot of moving parts there. So are they -- I'm curious if you can give a little bit of context around what happens post ramp-up of this trial and Decco in the market.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [15]

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We can't really speak for Decco. They will have to decide what they want to do. What we are always going to do though, and I want to be very clear, we're going to very fiercely defend our IP. As Graham has mentioned, we put a lot of money in R&D. We have a lot of developments. And anybody that we see that is not really following the rules, we will enforce it in a very strong manner. That's all we can respond for. Whatever other people are going to do, I cannot tell you.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16]

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Got it. That's fair. This question is a little bit more for, I think, Graham. So SG&A, I think, was, as you said, $15 million in the quarter and there was some about $1.7 million of normalized or not extraneous costs. I'm assuming that was a lot around the legal side. What is a good SG&A run rate, not just into fourth quarter, but really into next year? Could you give any insight into that because that could be a significant driver as well?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [17]

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Yes. So if you look at our year-to-date total operating costs, selling, marketing, SG&A, including R&D for the 3 quarters so far, due to an annualization to the run rate that will give you a good spot, and we believe we can even do better than that. So in other words that if you -- so far, for the year-to-date, we said including as a reported basis before we excluding -- before we exclude the nonrecurring costs, year-over-year was down 6 percentage, right? So if you take that and then excluding the -- if we exclude the nonrecurring item, the decline -- cost decline will be even greater than 7%. So that probably will give you a good proxy for the next year.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay. I'll have to run the math to check it, okay? And then actually, the final follow-up question. In the press release, you had a comment or line that says, "succeeding in our efforts to optimize operating costs and improve the capital structure." First after that, I get that's optimizing operating costs. You did talk about a little bit on the call about capital structure. Any more detail as to optionality that's going on in there or moving down the road, talking to banks? Is it an amend and extend or maybe a whole new debt facility? Anything you can discuss on that front?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [19]

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Yes, we're looking at -- thank you for the question, Gerry. So this is obviously on top of agenda in addition to driving our organic business growth. So the -- we're looking at it -- to be frank, we are looking at all these options. And clearly, as you see, despite the fact that we have a seasonal delay, our top line revenue impact, our cash flow continues to be strong, stable. And as a matter of fact, year-over-year, we're improving our cash flow through our internal operational improvement, working capital, cash collection, optimization of cost structure. So our ability to service our debt is strong. So what we're looking at is to how to refinance or other alternatives to look at the capital structure so that we can be in a position not only to extend -- amend and extend or refinance, so have a new term loan, but also we're looking to deleverage our overall debt levels. So we're looking at all of these aspects. And we -- as we mentioned on the call, it's an ongoing process right now.

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

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What you can be sure, Gerry, is that we always have the best interest of our shareholders in mind. So it's a decision that we continue, and we will make it right on that considering.

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Operator [21]

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(Operator Instructions) Our next question comes from Ben Klieve with National Securities.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [22]

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Just one quick follow-up from one of Gerry's questions regarding the kind of the size of the harvest this year, especially in the Pacific Northwest, for a while, this summer, looked like it was potentially going to be really a bumper crop. Jordi, I heard you loud and clear that you said that you think it's going to likely be an improvement from last year. Last year was a particularly weak year, if I recall correctly. So my question for you is the -- I'm guessing that any improvement in the Pacific Northwest would be kind of modest relative to last year, and that it's not going to be kind of on par with harvest that we're seeing in kind of 2015, '16, '17. Is that a fair statement?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [23]

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I'm not going to speculate at this time. We are going to be a little prudent until the crop is over. Again, the delay makes it a little bit difficult to answer you definitely at this point in time because I do think that you have to consider other things that affect our business, potentially, right? It's the -- obviously, the size of the crop, it's positive for us. Then you have to see [if there is all apples are taken to store] and other things. So yes, it looks like it's going to go at least to a normal level, if you want to put it that way in terms of the average of the 5 years. However, we have to be a little bit prudent until the season is done in terms of how many of those actually make it to storage, right? And that's why we are in the process, it looks good. But at this point in time, I would prefer to delay that response to when the season is done.

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

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Ben, I want to add that last year, as a reminder, third quarter last year was particularly a strong quarter.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [25]

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That's correct.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [26]

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Right. Okay. A couple of other questions. One, with regards to the legal settlement, I know there's a lot of uncertainty still here. But can you kind of provide an update as to your understanding of kind of the timing of any potential appeals? And kind of your best estimates before really the status of when you may actually collect those proceeds?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [27]

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It's a little bit early. And again, I'm not going to speak publicly on that. The only thing I'll say is we have an excellent legal team. And they'll make sure that we are able to collect this as soon as it's materially possible, right? You can understand, we've made our own estimations internally, but I'm not in a position right now to share that publicly. We're not having any expectations one way or another. But we are very, very confident of what we're doing and that we will be able to resolve this in the best way in terms of putting a closure to this.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [28]

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Right. Fair enough. And then also kind of on the noncore side, what are your expectations for the balance of this year and into next year for the tax receivable payments that you're making to Dow?

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Graham G. Miao, AgroFresh Solutions, Inc. - Executive VP & CFO [29]

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So tax receivables are a function of our U.S. and as a reminder, is a function of our U.S. entity taxable income. So in the U.S., when you look at our disclosed P&L, we have a huge amortization as part of the acquisition 4 years ago, the intangible amortization. So for this year, we have carryover from last year. So last year, we paid a $4 million TRA, and we had a carryover of $8 million this year. And then for the ongoing TRA, typically, we estimate it's about -- in $3 million, $4 million. It's a function of how the taxable income is calculated.

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Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [30]

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Okay. Perfect. And last one from me. Just wondering if you can kind of provide -- elaborate a bit on kind of your outlook for FreshCloud kind of through 2020? Kind of what are the metrics that you're really looking at? Kind of what are the -- what are maybe some posts we can target for next year that really show the kind of continued advancement of the FreshCloud product?

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [31]

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So we have already mentioned that, although from a small base this year, I mean we are seeing the increases percentage wise. And we expect this trend to go into next year and to gain more penetration in terms of -- especially our storage insights, that is the module that's a lot more advanced. So we continue to see growth next year. And we're very bullish, and we have said many times this is a journey we're not going to let go. This is a very strategic thing for this company but also for the industry. It's a need. We're starting. We're growing. We'll continue to invest. And next year, you should see growth also in that area.

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Operator [32]

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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 for any closing remarks.

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Jordi Ferre, AgroFresh Solutions, Inc. - CEO & Director [33]

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I just would like to thank everybody for attending this call and your continuous interest and support for the company, and we continue to work -- ask here everybody to make sure that we deliver. Thank you.

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Operator [34]

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This concludes today's conference call. We thank you for attending. You may now disconnect your lines.