AGROFRESH SOLUTIONS, INC.
As used in this Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"), the terms "Company," "AgroFresh ," "we," "us" and
"our" refer to AgroFresh Solutions, Inc. and its consolidated subsidiaries,
unless the context otherwise requires or it is otherwise indicated.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto contained elsewhere in
this Report.
This MD&A contains the financial measures EBITDA and Adjusted EBITDA, which are
not presented in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). These non-GAAP financial measures are being
presented because management believes that they provide readers with additional
insight into the Company's operational performance relative to earlier periods
and relative to its competitors and they are key measures used by the Company to
evaluate its performance. The Company does not intend for these non-GAAP
financial measures to be a substitute for any GAAP financial information.
Readers of this MD&A should use these non-GAAP financial measures only in
conjunction with the comparable GAAP financial measures. A reconciliation of
EBITDA and Adjusted EBITDA to the most comparable GAAP measure is provided in
this MD&A.
Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report
including, without limitation, statements in this MD&A regarding the Company's
financial position, business strategy and the plans and objectives of management
for future operations, are forward looking statements. When used in this Report,
words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to the Company or its management, identify
forward looking statements. Such forward looking statements are based on the
beliefs of management, as well as assumptions made by, and information currently
available to, management. Actual results and/or the timing of events could
differ materially from those contemplated by these forward-looking statements
due to a number of factors, including those discussed under the heading "Risk
Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2019 (the "2019 Form 10-K") as well as the update to those Risk
Factors disclosed in Part II, Item 1A of this Report. Any forward-looking
statements included in this Report are based only on information currently
available to the Company and speak only as of the date on which such statements
are made. The Company undertakes no obligation to publicly update any
forward-looking statement, whether written or oral, that may be made from time
to time, whether as a result of new information, future developments or
otherwise. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
qualified in their entirety by this paragraph.
Business Overview
AgroFresh is a global leader in delivering innovative food quality 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. AgroFresh has key products registered in over 50 countries and supports
customers with over 25,000 storage rooms globally. AgroFresh has an extensive
portfolio of freshness solutions ranging from LandSpringTM for transplanted
seedlings, near-harvest with HarvistaTM and post-harvest including its flagship
SmartFreshTM technology. Additional post-harvest freshness solutions include
fungicides that can be applied to meet various customer operational
requirements, in either a foggable (ActiMist™) or liquid (ActiSeal™) delivery
form. To supplement our near- and post-harvest product solutions, our suite of
FreshCloud™ analytical, diagnostic and tracking services provide a range of
value-added capabilities that help customers optimize the quality of their
produce. Beyond apples, SmartFresh technology can provide ready-to-eat freshness
for other fruits and vegetables including avocados, bananas, melons, tomatoes,
broccoli and mangos. AgroFresh is also providing customers with packaging-based
advisory services and custom packaging solutions including RipeLock, our
packaging-based freshness technology solutions for fruits and vegetables.
In December 2017 , AgroFresh acquired a controlling interest in Tecnidex. With
this acquisition, AgroFresh expanded its post-harvest presence into additional
crops, and increased its penetration of the produce market in southern Europe ,
Latin America and Africa . This acquisition expanded AgroFresh's product
portfolio into waxes and coatings and reinforced its position in fungicides. For
over 35 years, Tecnidex has been helping fruit and vegetable producers offer
clean, safe and high-quality produce to customers, now reaching 18 countries.
Through its portfolio of post-harvest fungicides, coatings, waxes,
disinfectants, equipment and associated consulting and after-sale services,
Tecnidex improves the quality and value of its clients' fruit and vegetables
while respecting the environment. Tecnidex further diversified AgroFresh's
revenue by expanding the Company's ability to provide solutions and service to
the citrus industry.
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Tabl e of Contents
Freshness is the most important driver of consumer satisfaction when it comes to
produce and, at the same time, lack of freshness results in waste which is a
major issue in the industry. About one third of the total food produced
worldwide is lost or wasted each year. Nearly 45% of all fresh fruits and
vegetables, 40% of apples and 20% of bananas, are lost to spoilage. AgroFresh
plays a key role in the value chain by offering products and services that
maintain produce freshness and reduce waste.
AgroFresh's current flagship product, SmartFresh, regulates the post-harvest
ripening effects of ethylene, the naturally occurring plant hormone that
triggers ripening in certain fruits and vegetables. SmartFresh is naturally
biodegradable, leaves no detectable residue and has been approved for use by
many domestic and global regulatory organizations. Harvista extends the
Company's proprietary technology into the field, including treatment of cherries
and blueberries early in the growing season and near-harvest management of
apples and pears. FreshCloud Storage InsightsTM is an atmospheric monitoring
system that leverages the Company's extensive understanding of fruit physiology,
fruit respiration, controlled atmosphere technology and new proprietary
diagnostic tools to provide improved real-time guidance to producers and packers
of fresh produce regarding storage conditions so timely corrective measures can
be taken. LandSpringTM is an innovative 1-MCP technology targeted to
transplanted vegetable seedlings. It is currently registered for use on
tomatoes, peppers and 14 other crops in the U.S. It reduces transplant shock,
resulting in less seedling mortality and faster crop establishment, which leads
to a healthier crop and improved yields.
AgroFresh's business is highly seasonal, driven by the timing of harvests in the
northern and southern hemispheres. For apples and pears, the first half of the
year is when the southern hemisphere harvest occurs and the second half of the
year is when the northern hemisphere harvest occurs. Since the northern
hemisphere harvest of apples, our primary crop, is typically larger, a
significant portion of our sales and profits are historically generated in the
second half of the year. In addition to this seasonality, factors such as
weather patterns may impact the timing of the harvest within the two halves of
the year. Diversifying into other crops is a key strategy to balance
seasonality, therefore there is a strategic importance of the Tecnidex
acquisition since the citrus harvest in northern hemisphere countries occurs in
the last and first quarters of the year.
On July 31, 2015 (the "Closing Date"), we consummated a business combination
(the "Business Combination") pursuant to a Stock Purchase Agreement, dated April
30, 2015 (the "Purchase Agreement"), with Dow, providing for the acquisition by
us of the AgroFresh business from Dow. In connection with the closing of the
Business Combination, we entered into a tax receivables agreement (the "TRA"),
as amended in April 2017 , pursuant to which Dow was entitled to receive 50% of
the tax savings, if any, that the Company realized as a result of the increase
in the tax basis of assets acquired pursuant to the Business Combination. The
TRA was terminated in December 2019 . Also in connection with the closing of the
Business Combination, AgroFresh entered into a transition services agreement
with Dow. Under the agreement, Dow provided AgroFresh a suite of services for a
period of time ranging from six months to five years depending on the service.
While most of the Dow-provided services were complete as of December 31, 2018 ,
certain services are expected to continue through 2020.
Factors Affecting the Company's Results of Operations
Impact of COVID-19
InMarch 2020 , the COVID-19 outbreak was declared aNational Public Health Emergency which continues to spread throughout the world and has adversely impacted global activity and contributed to significant declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. During the three months endedSeptember 30, 2020 , as the Company's primary sales regions moved to the northern hemisphere, the COVID-19 pandemic continued to not have a significant adverse impact on our results of operations. However, there were 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. While we are following the requirements of governmental authorities and taking additional preventative and protective measures to ensure the safety of our workforce, including implementing remote working arrangements and varying procedures for essential workforce, we cannot be 100% certain that there will not be any incidents across our global operations that may cause service interruptions. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak, although the Company operates in an industry that thus far has not been as severely impacted as others. Nevertheless, the outbreak presents some uncertainty and risk with respect to the Company and its performance and financial results. 26 -------------------------------------------------------------------------------- Tabl e of Contents Demand for the Company's Offerings The Company services customers in over 50 countries and derives its revenue by assisting growers and packers to optimize the value of their crops primarily through the post-harvest period. Its products and services add value to customers by reducing food spoilage and extending the life of perishable fruits.The U.S. Food and Agriculture Organization of the United Nations has estimated that a growing global population will require a near doubling of food production in developing countries by 2050 to meet the expected demand of a worldwide population of nine billion people.
This global trend, among others, creates demand for the Company's solutions. The Company's offerings are currently protected by patent filings in 51 countries.
The global produce market is a function of both the size and the yield of the crop harvested, and variations in either will affect total production. Given the nature of the agricultural industry, weather patterns may impact total production and the Company's resulting commercial opportunities. The Company supports a diverse customer base whose end markets vary due to the type of fruit and quality of the product demanded in their respective markets. Such variation across end markets also affects demand for the Company's services. Customer Pricing The Company's service offerings are priced based on the value they provide to the Company's customers. From time to time, the Company may adjust its pricing policy to incorporate new offerings or address market and volume trends. The Company does not typically price its products in relation to any underlying cost of materials or services; therefore, its margins can fluctuate with changes in these costs. The Company's pricing may include rebate arrangements with customers in exchange for mutually beneficial long-term relationships and growth. Integrated Service ModelAgroFresh uses a direct service model to offer the Company's commercially available products, including SmartFresh and Harvista. Sales and technical support personnel maintain face-to-face relationships with customers year round. Technical sales and support personnel work directly with customers to provide value-added advisory services regarding the application of SmartFresh. The actual application of SmartFresh is performed by service providers that are typically third-party contractors or, for some product variations, made by our customers directly. The Harvista application service, through both aerial and ground application, is also administered by third-party service providers or made by our customers directly.
Most of the Company's service providers are operating under multi-year contracts. Management believes the quality and experience of its service providers deliver clear commercial benefits.
Seasonality
The Company's operations are subject to seasonal variation due to the timing of the growing seasons around the world. For our core crops of apples and pears, northern hemisphere growers harvest from August through November, and southern hemisphere growers harvest from late January to early May. As we diversify into other crops, such as citrus, we also anticipate seasonal variations in this business due to the northern hemisphere citrus harvest, which spans from October to March. Since the majority of the Company's sales are in northern hemisphere countries, a proportionately greater share of its revenue is realized during the second half of the year. There are also variations in the seasonal demands from year to year depending on weather patterns and crop size. This seasonality and variations in seasonal demand could impact the ability to compare results between periods. Foreign Currency Exchange Rates With a global customer base and geographic footprint, the Company generates revenue and incurs costs in a number of different currencies, with the Euro comprising the most significant non-U.S. currency. Fluctuations in the value of these currencies relative to theU.S. dollar can increase or decrease the Company's overall revenue and profitability as stated inU.S. dollars, which is the Company's reporting currency. In certain instances, if sales in a given geography have been adversely impacted on a long-term basis due to foreign currency depreciation, the Company has been able to adjust its pricing so as to mitigate the impact on profitability. 27 -------------------------------------------------------------------------------- Tabl e of Contents Domestic and Foreign Operations The Company has both domestic and foreign operations. Fluctuations in foreign exchange rates, regional growth-related spending in research and development ("R&D") and marketing expenses, and changes in local selling prices, among other factors, may impact the profitability of foreign operations in the future. Critical Accounting Policies and Use of Estimates Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations and that require the use of complex and subjective estimates based upon management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ materially from these estimates. There have been no material changes to our critical accounting policies and estimates previously disclosed in the 2019 Form 10-K. For a description of our critical accounting policies and estimates as well as a listing of our significant accounting policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates" and "Note 2 - Basis of Presentation and Summary of Significant Accounting Policies" in the 2019 Form 10-K. 28 -------------------------------------------------------------------------------- Tabl e of Contents Results of Operations The following table summarizes the results of operations for the three and nine months endedSeptember 30, 2020 andSeptember 30, 2019 : Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, (in thousands) 2020 2019 2020 2019 Net sales$ 52,770 $ 48,972 $ 105,775 $ 109,095 Cost of sales (excluding amortization, shown separately below) 13,511 13,892 28,492 31,516 Gross profit 39,259 35,080 77,283 77,579 Research and development expenses 2,852 2,566 8,389 9,720 Selling, general and administrative expenses 13,494 14,998 39,925 47,044 Amortization of intangibles 10,973 11,754 32,866 35,136 Impairment of long lived assets - - - 992 Change in fair value of contingent consideration - (229) - 128 Grant income - - (2,974) - Operating income (loss) 11,940 5,991 (923) (15,441) Other income (expense) 96 (81) 1,596 (119) Debt modification and extinguishment expenses (5,028) - (5,028) - Gain (loss) on foreign currency exchange 1,390 54 2,466 (2,884) Interest expense, net (4,922) (8,606) (18,401) (26,021) Gain (loss) before income taxes 3,476 (2,642) (20,290) (44,465) Income taxes expense (benefit) 25,857 (5,653) 22,656 (12,530) Net (loss) income including non-controlling interests (22,381) 3,011 (42,946) (31,935) Less: Net loss attributable to non-controlling interests (494) (278) (857) (336) Net (loss) income attributable to AgroFresh Solutions, Inc (21,887) 3,289 (42,089) (31,599) Less: Dividends on convertible preferred stock 4,400 - 4,400 -
(Loss) income attributable to
Comparison of Results of Operations for the three months ended
Net sales were$52.8 million for the three months endedSeptember 30, 2020 , as compared to net sales of$49.0 million for the three months endedSeptember 30, 2019 , an increase of 7.8%. The impact of the change in foreign currency exchange rates compared to the third quarter of 2019 increased revenue by$1.1 million . Excluding this impact, revenue increased approximately 5.6%. The net sales increase was primarily the result of SmartFresh growth inEurope due in part to the normalization of harvest seasonality versus prior year, increased traction of Harvista in European markets, and positive contributions from Tecnidex.
Cost of Sales
Cost of sales was$13.5 million for the three months endedSeptember 30, 2020 , as compared to$13.9 million for the three months endedSeptember 30, 2019 . Gross profit margin was 74.4% for the three months endedSeptember 30, 2020 versus 71.6% for the three months endedSeptember 30, 2019 . The higher gross margin was primarily the result of the Company's supply chain efficiencies and further supported by price discipline. 29 -------------------------------------------------------------------------------- Tabl e of Contents Research and Development Expenses
Research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$13.5 million for the three months endedSeptember 30, 2020 , compared to$15.0 million for the three months endedSeptember 30, 2019 , a decrease of 10.0%. Included in selling, general and administrative expenses were$0.4 million in the current year and$1.6 million in the prior year of costs associated with non-recurring items that included M&A, litigation, refinancing and severance costs. Excluding these items, selling general and administrative expenses decreased approximately 1.6% in the third quarter versus the prior year period, which reflects the Company's ongoing cost optimization initiatives, as well as a temporary decrease in travel and other miscellaneous expenses as a result of the global pandemic.
Amortization of Intangibles
Amortization of intangible assets was$11.0 million for the three months endedSeptember 30, 2020 , compared to$11.8 million for the three months endedSeptember 30, 2019 . The reduction in the amortization expense for the three months endedSeptember 30, 2020 is due to the accelerated amortization of RipeLock inDecember 2019 of$38.0 million , which resulted in lower quarterly amortization of$0.6 million . Impairment of Intangibles
There were no indicators of impairment during the three months ended
Change in Fair Value of Contingent Consideration
The Company recorded no gain or loss for the three months endedSeptember 30, 2020 related to a change in the fair value of contingent consideration, as compared to a$0.2 million gain in the three months endedSeptember 30, 2019 . As discussed in Note 3 - Business Combinations and Asset Acquisition of the unaudited condensed consolidated financial statements, pursuant to the Business Combination the Company entered into various forms of contingent consideration, including the tax amortization benefit contingency. These liabilities are measured at fair value each reporting date and any mark-to-market fluctuations are recognized in earnings. InDecember 2019 , the TRA with Dow was terminated, and the Company paid to Dow an aggregate of$16 million in settlement of all past and estimated future liabilities that would have been owed under the TRA. The fair value adjustment of the contingent consideration related to the Tecnidex acquisition was settled in 2019.
Other Income (Expense)
Other income was$0.1 million for the three months endedSeptember 30, 2020 , as compared to expense of$0.1 million for the three months endedSeptember 30, 2019 .
Debt Modification and Extinguishment Expenses
The Company recognized debt modification and extinguishment expense of$5.0 million for the three months endedSeptember 30, 2020 as a result of closing the Restated Credit Facility as discussed in Note 11 - Debt of the unaudited condensed consolidated financial statements and below. There was no such expense recognized during the three months endedSeptember 30, 2019 .
Interest Expense, Net
Interest expense was$4.9 million for the three months endedSeptember 30, 2020 , as compared to$8.6 million for the three months endedSeptember 30, 2019 . The decrease was primarily due to$1.9 million lower interest on the long-term debt due to a lower variable rate and principal balance and$0.9 million lower accretion on the TRA due to the settlement of the TRA inDecember 2019 and an increase in hedge income of$0.7 million .
Gain (loss) on Foreign Currency
Gain on foreign currency was
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Tabl e of Contents
During the three months endedSeptember 30, 2020 , foreign currency gains were recognized related toU.S. dollar intercompany payables to the Brazilian real and Turkish lira, which grew weaker relative to theU.S. dollar.
Income Taxes
Income tax expense was$25.9 million for the three months endedSeptember 30, 2020 , compared to income tax benefit of$5.7 million for the three months endedSeptember 30, 2019 . During the three months endedSeptember 30, 2020 , the Company recorded a valuation allowance of$24.7 million , primarily as a result of the ownership change (related to the new preferred stock investment) that will limit the realizability of certainU.S. tax attributes. For the three months endedSeptember 30, 2019 , the quarter's largest effective tax rate modification related to the elimination of intercompany profits resulted in an income tax benefit.
Comparison of Results of Operations for the nine months ended
Net sales were$105.8 million for the nine months endedSeptember 30, 2020 , as compared to net sales of$109.1 million for the nine months endedSeptember 30, 2019 , a decrease of 3.0%. The impacts of the change in foreign currency rates reduced revenue by$2.7 million for the nine months endedSeptember 30, 2020 . Excluding this impact, revenue decreased approximately 0.5%. The slight decrease in net sales on a constant currency basis was primarily the result of geographic mix, where the relatively strong sales in the EMEA and APAC regions were more than offset by relatively weaker sales in theNorth America andLatin America regions. Cost of Sales Cost of sales was$28.5 million for the nine months endedSeptember 30, 2020 , as compared to$31.5 million for the nine months endedSeptember 30, 2019 . Gross profit margin was 73.1% for the nine months endedSeptember 30, 2020 versus 71.1% for the nine months endedSeptember 30, 2019 . The year over year improvement was a result of the supply chain cost optimizations that were implemented at the end of 2019 and are expected to carry through the balance of 2020.
Research and Development Expenses
Research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$39.9 million for the nine months endedSeptember 30, 2020 compared to$47.0 million for the nine months endedSeptember 30, 2019 , a decrease of 15.1%. There were non-recurring costs associated with M&A, litigation, refinancing and severance in the amount of$2.8 million in the current year and$6.9 million in the prior year period. Excluding these items, selling general and administrative expenses decreased approximately 7.6% over the same period last year driven by ongoing cost optimization initiatives, and to a lesser extent, the temporary decrease in travel and other miscellaneous expenses as a result of the global pandemic.
Amortization of Intangibles
Amortization of intangible assets was$32.9 million for the nine months endedSeptember 30, 2020 , compared to$35.1 million for the nine months endedSeptember 30, 2019 . The reduction in the amortization expense for the nine months endedSeptember 30, 2020 is due to the accelerated amortization of RipeLock inDecember 2019 of$38.0 million , which resulted in lower amortization of$1.9 million during the period. 31 -------------------------------------------------------------------------------- Tabl e of Contents Impairment of Intangibles There were no indicators of impairment during the nine months endedSeptember 30, 2020 . The Company recorded an impairment charge of$1.0 million during the nine months endedSeptember 30, 2019 associated with the Verigo software following a partnership agreement with a new technology provider.
Change in Fair Value of Contingent Consideration
The Company recorded no gain or loss for the nine months endedSeptember 30, 2020 , as compared to a$0.1 million loss in the nine months ended September 30, 2019. As discussed in Note 3 - Business Combinations and Asset Acquisition of the unaudited condensed consolidated financial statements, pursuant to the Business Combination the Company entered into various forms of contingent consideration, including the tax amortization benefit contingency. These liabilities are measured at fair value each reporting date and any mark-to-market fluctuations are recognized in earnings. InDecember 2019 , the TRA with Dow was terminated, and the Company paid to Dow an aggregate of$16 million in settlement of all past and estimated future liabilities that would have been owed under the TRA. The fair value adjustment of the contingent consideration related to the Tecnidex acquisition was settled in 2019.
Grant Income
The Company recorded income of$3.0 million in the nine months endedSeptember 30, 2020 . Pursuant to the CARES Act, the Company received a Paycheck Protection Program loan to offset eligible costs incurred during the period. As the Company believes it is in compliance with the forgiveness criteria under this loan program, the full amount was recognized as grant income.
Other Income (Expense)
Other income was$1.6 million for the nine months endedSeptember 30, 2020 , as compared to$0.1 million expense for the nine months endedSeptember 30, 2019 . The Company received$1.6 million in cash from settlement of a litigation matter during the nine months endedSeptember 30, 2020 .
Debt Modification and Extinguishment Expenses
The Company recognized debt modification and extinguishment expenses of$5.0 million for the nine months endedSeptember 30, 2020 as a result of closing the Restated Term Facility as discussed in Note 11 - Debt of the unaudited condensed consolidated financial statements and below. There was no such expense recognized during the nine months endedSeptember 30, 2019 .
Interest Expense, Net
Interest expense was$18.4 million for the nine months endedSeptember 30, 2020 , as compared to$26.0 million for the nine months endedSeptember 30, 2019 . The decrease was primarily due to$4.9 million lower interest on long-term debt due to a lower variable rate and principal balance and$2.6 million lower accretion on the TRA due to the settlement of the TRA inDecember 2019 .
Gain (loss) on Foreign Currency
Gain on foreign currency was
During the nine months endedSeptember 30, 2020 , foreign currency gains were recognized related to theU.S. dollar and euro intercompany payables to Turkish lira, South African rand and Brazilian real, which experienced inflation during the period, offset by foreign currency losses recognized inArgentina due to inflation during the period and hyperinflationary accounting. During the nine months endedSeptember 30, 2019 , the loss was primarily related to foreign currency losses inArgentina due to inflation during the period and hyperinflationary accounting.
Income Taxes
Income tax expense was$22.7 million for the nine months endedSeptember 30, 2020 , compared to income tax benefit of$12.5 million for the nine months endedSeptember 30, 2019 . During the nine months endedSeptember 30, 2020 , there was an increase in the valuation allowance, primarily as a result of the ownership change that will limit the realizability of certainU.S. tax 32 -------------------------------------------------------------------------------- Tabl e of Contents attributes. For the nine months endedSeptember 30, 2019 , the period's largest effective tax rate modification related to the elimination of intercompany profits resulted in an income tax benefit. 33 -------------------------------------------------------------------------------- Tabl e of Contents Non-GAAP Measures The following table sets forth the non-GAAP financial measures of EBITDA and Adjusted EBITDA. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance (including incentive bonuses and for bank covenant reporting), are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.
The following is a reconciliation between the non-GAAP financial measures of EBITDA and Adjusted EBITDA to their most directly comparable GAAP financial measure, net loss:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
(in thousands) 2020 2019 2020 2019
GAAP net (loss) income including
non-controlling interests $ (22,381) $ 3,011 $ (42,946) $ (31,935)
Expense (benefit) for income taxes 25,857 (5,653) 22,656 (12,530)
Interest expense (1) 4,922 8,606 18,401 26,021
Depreciation and amortization 11,630 12,356 34,775 36,692
Non-GAAP EBITDA $ 20,028 $ 18,320 $ 32,886 $ 18,248
Share-based compensation 943 959 2,705 2,111
Severance related costs (2) 356 344 430 1,040
Other non-recurring costs (3) - 1,297 2,383 6,305
(Gain) loss on foreign currency exchange
(4) (1,390) (54) (2,466) 2,884
Debt modification and extinguishment
costs 5,028 - 5,028 -
Mark-to-market adjustments, net (5) - (229) - 128
Impairment of intangible assets (6) - - - 992
Grant income - - (2,974) -
Litigation recovery - - (1,600) -
Non-GAAP Adjusted EBITDA $ 24,965 $ 20,637 $ 36,392 $ 31,708
(1) Interest on debt, accretion for debt discounts, debt issuance costs and
contingent consideration.
(2) Severance costs related to ongoing cost optimization initiatives.
(3) Costs related to certain professional and other infrequent or non-recurring
fees, including those associated with refinancing, litigation and M&A related
fees.
(4) (Gain) loss on foreign currency exchange relates to net losses and gains
resulting from transactions denominated in a currency other than the entity's
functional currency.
(5) Non-cash adjustment to the fair value of contingent consideration,
including the TRA and contingent payment related to the Tecnidex acquisition.
(6) Impairment of intangible assets related to software.
The following is a reconciliation between net sales on a non-GAAP constant currency basis to GAAP net sales:
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended (in thousands)
September 30, 2020 September
30, 2019
$ 52,770 $ 48,972 $ 105,775 $ 109,095 Impact from changes in foreign currency exchange rates
(1,064) - 2,738 -
Non-GAAP constant currency net sales
(1) $ 51,706 $ 48,972 $ 108,513 $ 109,095
(1) The company provides net sales on a constant currency basis to enhance
investors' understanding of underlying business trends and operating
performance, by removing the impact of foreign currency exchange rate
fluctuations. The impact from foreign currency, calculated on a constant
currency basis, is determined by applying prior period average exchange rates to
current year results.
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