AGROFRESH SOLUTIONS, INC.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the audited
consolidated financial statements and the notes thereto contained elsewhere in
this Report.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("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.
Merger Agreement
As discussed in "Business - Merger Agreement" in Part I, Item 1 of this Report,
on November 21, 2022 , the Company entered into the Merger Agreement. Upon the
terms and subject to the conditions set forth in the Merger Agreement, among
other things, Merger Sub will merge with and into the Company, with the Company
surviving the Merger as the Surviving Corporation . As a result of the Merger,
the Company will cease to be a publicly traded company, and investment funds
managed by Paine Schwartz will become the indirect owner of all the Company's
outstanding capital stock. Consummation of the Merger is subject to certain
specified closing conditions, including the approval by holders of a majority of
the aggregate voting power of (i) the outstanding Shares (including those held
by Paine Schwartz and its affiliates) and the outstanding shares of Series B
Preferred Stock, voting together as a single class, and (ii) the outstanding
Shares held by stockholders who are not affiliated with Paine Schwartz , members
of the Company's board of directors, certain officers of the Company, or any of
their respective associates or members of their immediate family. Assuming
satisfaction or waiver (to the extent permitted) of the conditions set forth in
the Merger Agreement, the Company currently expects the transactions
contemplated thereby to close in the first quarter of 2023.
Business Overview
AgroFresh is a global leader in delivering innovative food preservation and waste reduction 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 by protecting approximately 25,000 storage rooms globally.AgroFresh's solutions range from near-harvest with HarvistaTM and LandSpringTM to its flagship post-harvest SmartFreshTM Quality System. 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 FreshCloud™ digital technology platform includes analytical, diagnostic and tracking services that provide a range of value-added capabilities to 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. InDecember 2017 ,AgroFresh acquired a controlling interest in AgroFresh Fruit Protection (formerly known as Tecnidex). With this acquisition,AgroFresh expanded its industry-leading post-harvest presence into additional crops and increased its penetration of the produce market in southernEurope ,Latin America andAfrica . For over 35 years, AgroFresh Fruit Protection has been helping fruit and vegetable producers offer clean, safe and high-quality products to its regional customers in 18 countries. AgroFresh Fruit Protection offers a portfolio of post-harvest fungicides, coatings and disinfectants, packinghouse equipment and associated consulting and after-sale services, to improve the quality and value of our customers' fruit and vegetables while respecting the environment. AgroFresh Fruit Protection further diversifiedAgroFresh's revenue by allowing the Company to provide solutions and service to the citrus industry. Freshness is the most important driver of consumer satisfaction when it comes to produce and, at the same time, food waste is a major issue in the industry. About one third of the total food produced worldwide is lost or wasted each year. Nearly 50% of all fresh fruits and vegetables 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.
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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 early in the growing season and
near-harvest management of apples, pears and blueberries. FreshCloud™ is our
digital technology services platform, which continues to expand. Launched in
2020, FreshCloud Quality Inspection is a proprietary cloud-based mobile quality
management service that digitizes what was formerly a manual quality control
process and captures, organizes and analyzes quality metrics in real time.
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 US. 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 the apple and
pear harvests in the northern and southern hemispheres. 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 and pears 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.
Factors Affecting the Company's Results of Operations
The Company's results of operations are affected by a number of external factors. Some of the more important factors are briefly discussed below.
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 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 year endedDecember 31, 2022 , the COVID-19 pandemic did 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 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.
Demand for the Company's Offerings
The Company sells to customers in approximately 50 countries and derives its revenue by assisting growers and packers to optimize the value of their crops primarily in the near and post-harvest periods. The Company's products and services add value to customers by reducing food spoilage and extending the life of perishable fruits.The 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 expected to reach 9 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 45 countries.
The global produce market is a function of both the size and the yield of the crop harvested; 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 offerings are priced based on the value they provide to the
Company's customers. From time to time, the Company adjusts the pricing of its
offerings to address market 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
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--------------------------------------------------------------------------------Company's pricing may include rebate arrangements with customers in exchange for mutually beneficial long-term relationships and growth.
Integrated Direct Service Model
AgroFresh offers the Company's commercially available products, including SmartFresh and Harvista, primarily through a direct service model. Sales and sales support personnel maintain face-to-face relationships with customers year round. Technical sales and support personnel work 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. Harvista is applied through both ground and aerial application, which is 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, southern hemisphere growers harvest from late January to early May, and northern hemisphere growers harvest from August through November. For citrus crops, there are 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.
Domestic and Foreign Operations
The Company has both domestic and foreign operations. Fluctuations in foreign exchange rates, regional growth-related spending in 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
Our discussion and analysis of results of operations and financial condition are based upon our financial statements. These financial statements have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements. We base our estimates and judgments on historical experiences and assumptions believed to be reasonable under the circumstances and re-evaluate them on an ongoing basis. Actual results could differ from our estimates under different assumptions or conditions. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to the audited consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect its most significant estimates and assumptions used in the preparation of the financial statements. 32
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Other intangible assets
We conduct our annual indefinite-lived intangible assets impairment assessment as ofDecember 31 of each year unless conditions arise that would require a more frequent evaluation. In assessing the recoverability of indefinite-lived intangible assets, projections regarding estimated discounted future cash flows and other factors are made to determine if impairment has occurred. If we conclude that there has been impairment, we will write down the carrying value of the asset to its fair value. Each year, we evaluate those intangible assets with indefinite lives to determine whether events and circumstances continue to support the indefinite useful lives. When testing indefinite-lived intangible assets for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Such qualitative factors may include the following: •Macroeconomic conditions •Industry and market considerations •Cost factors •Overall financial performance; and •Other relevant entity-specific events In determining the fair value of its indefinite lived trade names, the Company applies the relief from royalty methodology, which is based on the assumption that without ownership of the assets, the user of the trade names would have to make a stream of payments to the owner of the trade names in return for the rights to use the trade names. By acquiring the trade name, the user avoids those payments. The Company has two indefinite-lived trade name assets,AgroFresh and SmartFresh, totaling$23.4 million , which passed the impairment test as ofDecember 31, 2022 by 16% and 9%, respectively. A 1% increase in the discount rate would not cause an impairment of any of the trade names. The Company's indefinite-lived trade name assets are at risk of impairment if their fair values decrease due to declines in revenues or an inability to execute management's business strategies. Future revenue estimates are, by their nature, subjective, and actual results may differ materially from our estimates. If our ongoing revenue projections are not met or if market factors utilized in the impairment tests deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, we may have to record impairment charges in future periods. During the year endedDecember 31, 2021 , the Company reclassified$3.6 million of AgroFresh Fruit Protection trade name (comprising the trade name "Tecnidex") to finite-lived intangibles as the Company began marketing Tecnidex products under theAgroFresh trade name. The Tecnidex trade name is still held as a defensive asset and is being amortized over its estimated useful life of 2.5 years. Finite-lived intangible assets, such as technology, customer relationships and software are amortized over their estimated useful lives, generally for periods ranging from 2.5 to 24 years. We assess the reasonableness of the useful lives of these assets regularly. Our assessment is based on a number of factors including competitive environment, product history, underlying product life cycles, operating strategy and the macroeconomic environment of the countries in which the products are sold. The impairment of finite-lived intangible assets is tested annually or more frequently when factors or changes in circumstances indicate that the fair value has declined below its carrying value. If any factors that could result in future impairment charge have occurred, a recoverability test is performed in which the undiscounted cash flows of the asset or asset group are compared to the carrying value. If the cash flows are not sufficient to recover the carrying value, then a fair value estimate is made of the asset or asset group to determine the amount of impairment, if any. Once these assets are fully amortized, they are removed from the balance sheet. The accelerated amortization expense is included in amortization of intangibles in the consolidated statements of operations.
Revenue Recognition
The majority of our revenues are generated from the application of our products
to fruits and vegetables either before or after harvesting. Revenue is
recognized at the time the product is applied to the fruits or vegetables as
this represents the point at which our performance obligation to the customer
has been completed.
The Company accounts for revenue in accordance with ASU 2014-09, Revenue from
Contracts with Customers (Topic 606), which requires revenue recognized to
represent the transfer of promised goods or services to customers at an amount
that reflects the consideration which is expected to be received in exchange for
those goods or services. To determine revenue recognition for the arrangements
that the Company determines are within the scope of Topic 606, the Company
performs the following 5 steps: (1) identify the contracts with a customer, (2)
identify the performance obligations in the contract, (3) determine the
transaction price, (4) allocate the transaction price to the performance
obligations in the contract and (5) recognize revenue when (or as) the entity
satisfies a performance obligation. Revenue is presented in our consolidated
statements of operations, net of estimated rebates and discounts. The majority
of the Company's contracts have multiple
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--------------------------------------------------------------------------------performance obligations primarily related to product application and post application services, which the Company provides. Revenue is deferred until the performance obligations are met.
See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to the audited consolidated financial statements for further information.
Stock-Based Compensation
We recognize stock-based compensation expense for all share-based payment awards on a straight-line basis over the requisite service period of the award. Determining the fair value of share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. See Note 16 - Stock Compensation to the audited consolidated financial statements contained in this report for further detail on stock-based compensation. Income taxes The provision for income taxes was determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the period. Deferred taxes result from differences between the book and tax basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date. Income tax related penalties are included in the provision for income taxes. In evaluating the ability to realize deferred tax assets, the Company relies on taxable income in prior carryback years, the future reversals of existing taxable temporary differences, future taxable income and tax planning strategies. The breadth of our operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes we will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and international tax audits in the normal course of business. A liability for unrecognized tax benefits is recorded when management concludes that the likelihood of sustaining such positions upon examination by taxing authorities is less than "more likely than not."
Recently Issued Accounting Standards and Pronouncements
See Note 2 - Basis of Presentation and Summary of Significant Accounting
Policies to the accompanying audited consolidated financial statements for a
full description of recent accounting pronouncements and our expectations of
their impact, if any, on our results of operations and financial condition.
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Results of Operations
The following table summarizes the results of operations:
Year Ended December 31,
(in thousands) 2022 2021 2020
Net sales $161,937 $165,989 $157,643 Cost of sales (excluding amortization, shown separately below)
53,441 48,956 42,217
Gross profit 108,496 117,033 115,426
Research and development expenses 12,062 12,931 12,357
Selling, general and administrative expenses 52,550 52,609 53,860
Amortization of intangibles 42,648 42,985 43,731
Impairment of goodwill - 6,380 -
Grant income - - (2,974)
Operating income 1,236 2,128 8,452
Other (expense) income (4,114) 14,046 1491
Debt modification and extinguishment expenses - - (5,028)
(Loss) gain on foreign currency exchange (9,333) 2,096 (2,836)
Interest expense, net (22,206) (21,774) (23,669)
Loss before income taxes (34,417) (3,504) (21,590)
Income tax (benefit) expense (613) 2,578 31,376
Net loss before non-controlling interest (33,804) (6,082) (52,966)
Less: Net (loss) income attributable to redeemable non-controlling interest
(447) (659) 745
Net loss attributable to AgroFresh Solutions, Inc. (33,357) (5,423) (53,711)
Less: Dividends on convertible preferred stock 26,429 24,921 10,488
Net loss attributable to AgroFresh Solutions, Inc.
common stockholders ($59,786 ) ($30,344 ) ($64,199 )
Comparison of Results of Operations for the year ended
Net sales were$161.9 million for the year endedDecember 31, 2022 , as compared to net sales of$166.0 million for the year endedDecember 31, 2021 , a decrease of 2.4%. The impact of the change in foreign currency exchange rates compared to 2021 reduced revenue by$10.1 million . Excluding this impact, revenue increased approximately 3.6%. The decrease in net sales was primarily driven by decreased sales of SmartFresh for Apple inNorth America , and a$9.0 million unfavorable foreign currency impact in EMEA, partially offset by increases in sales of Antimicrobials and Coatings inAfrica and theMiddle East .
Cost of Sales
Cost of sales was$53.4 million for the year endedDecember 31, 2022 , as compared to$49.0 million for the year endedDecember 31, 2021 . Gross profit margin was 67.0% in 2022 versus 70.5% in 2021. The lower gross margin reflects the Company's transition into a more diversified product portfolio, unfavorable foreign currency translation, and higher material costs associated with inflationary pressures.
Research and Development Expenses
Research and development expenses were$12.1 million for the year endedDecember 31, 2022 , as compared to$12.9 million for the year endedDecember 31, 2021 . The decrease in research and development expenses was primarily due to timing of projects. --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$52.6 million for the year endedDecember 31, 2022 , as compared to$52.6 million for the year endedDecember 31, 2021 , a decrease of 0.1%. The decrease was due to decreased incentive compensation and a continued focus on cost control initiatives, offset by litigation reserve expense of$2.6 million .
Amortization of Intangibles
Amortization of intangibles, including developed technology, customer relationships, software and trade names, was$42.6 million for the year endedDecember 31, 2022 , as compared to$43.0 million for the year endedDecember 31, 2021 . Impairment ofGoodwill During the year endedDecember 31, 2021 , the Company recorded an impairment charge of$6.4 million as a result of our segment realignment (See Note 19 - Segment and Geographical Information), reducing the Company's goodwill balance to zero. There was no such impairment recorded during the year endedDecember 31, 2022 .
Other (Expenses)/Income
The Company incurred other expenses of$4.1 million for the year endedDecember 31, 2022 , primarily related to transaction costs. The Company recognized$14.0 million of income for the year endedDecember 31, 2021 , which related primarily to the receipt of proceeds from the settlement of litigation matters.
(Loss) gain on foreign currency
Loss on foreign currency was$9.3 million for the year endedDecember 31, 2022 as compared to a gain of$2.1 million for the year endedDecember 31, 2021 . During 2022, foreign currency losses were recognized related toU.S. dollar intercompany receivables from the Argentinian peso, the euro and South African rand, which grew weaker relative to theU.S. dollar. During 2021, foreign currency gains were recognized related toU.S. dollar intercompany payables to the Turkish lira, which grew weaker relative to theU.S. dollar.
Interest Expense, Net
Interest expense, net was$22.2 million for the year endedDecember 31, 2022 , as compared to$21.8 million for the year endedDecember 31, 2021 . The increase was primarily due to higher interest of$2.1 million on the long-term debt, offset by higher interest income on investments of$1.4 million , and lower debt amortization of$0.1 million .
Income Tax Provision
Our effective tax rate was 1.8% for the year ended
In 2021, the Company recorded valuation allowances against deferred tax assets in certain foreign jurisdictions where the Company did not have sufficient evidence to support the future taxable income to realize its deferred tax assets. In 2022, the Company released valuation allowances against deferred tax assets in certain foreign jurisdictions where sufficient evidence was present to support future taxable income to realize its deferred tax assets. In addition, the Company incurred increased pre-tax losses in 2022 compared to 2021, increasing the overall tax benefit recorded.
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-
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--------------------------------------------------------------------------------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:
Year Ended December 31,
(in thousands) 2022 2021 2020
GAAP net loss including non-controlling
interests ($33,804 ) ($6,082 ) ($52,966 )
Expense (Benefit) provision for income taxes (613) 2,578 31,376
Interest expense (1) 22,206 21,774 23,669
Depreciation and amortization 45,639 45,745 46,970
Non-GAAP EBITDA 33,428 64,015 49,049
Share-based compensation 4,620 3,213 3,598
Severance related costs (2) 1,127 2,292 885
Other non-recurring costs (3) 1,219 2,315 3,240
Loss (gain) on foreign currency exchange (4) 9,333 (2,096) 2,836
Impairment of goodwill - 6,380 -
Debt modification and extinguishment costs - - 5,028
Other (income) expense (5) (515) 301 (2,974)
Litigation recovery - (14,392) (1,600)
Transaction costs (6) 4,643 - -
Litigation reserve 2,602 - -
Total Adjustments 23,029 (1,987) 11,013
Non-GAAP Adjusted EBITDA $56,457 $62,028 $60,062
(1) Interest on debt, accretion for debt discounts, debt issuance costs and
contingent consideration.
(2) Severance costs related to continued focus on cost control initiatives and
restructuring.
(3) Costs related to certain professional and other infrequent or non-recurring
fees, including those associated with litigation and M&A related fees.
(4) Loss (gain) on foreign currency exchange related to net gains and losses
resulting from transactions denominated in a currency other than the Company's
functional currency.
(5) Other (income) expense related primarily to grant income.
(6) Transaction costs include non-recurring expenses related to the pending
Merger
The following is a reconciliation between net sales on a non-GAAP constant currency basis to GAAP net sales:
Year Ended Year Ended December 31,
(in thousands) 2022 2021
GAAP net sales $161,937 $165,989
Impact from changes in foreign currency exchange rates 10,050 -
Non-GAAP constant currency net sales (1) $171,987 $165,989 (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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--------------------------------------------------------------------------------Liquidity and Capital Resources
Cash Flows
Year Ended Year Ended December 31,
(in thousands) 2022 2021 2020
Net cash provided by operating activities $16,172 $52,002 $26,715
Net cash used in investing activities ($4,035 ) ($4,023 ) ($2,395 )
Net cash used in financing activities ($13,624 ) ($31,385 ) ($4,859 )
Cash provided by operating activities was
For the year endedDecember 31, 2022 , net income before non-cash items was$9.4 million . Excluded in this amount is depreciation and amortization of$45.6 million , deferred income taxes of($9.3) million and other non-cash items of$6.9 million . Additionally, the change in net operating assets was$6.8 million in 2022. For the year endedDecember 31, 2021 , net income before non-cash items was$50.1 million . Excluded in this amount is depreciation and amortization of$45.7 million , impairment of goodwill of$6.4 million , deferred income taxes of($1.5) million and other non-cash items of$5.6 million . Additionally, the change in net operating assets was$1.9 million in 2021. For the year endedDecember 31, 2020 , net income before non-cash items was$27.2 million . Excluded in this amount is depreciation and amortization of$47.0 million , deferred income taxes of$29.3 million and other non-cash items of$4.0 million . Additionally, the change in net operating assets was($0.5) million in 2020. Cash used in investing activities was$4.0 million for the years endedDecember 31, 2022 , andDecember 31, 2021 and$2.4 million for the year endedDecember 31, 2020 . Cash used in investing activities in each of 2022 and 2021 was for the purchase of fixed assets and leasehold improvements of$4.0 million . Cash used in investing activities in 2020 was for the purchase of fixed assets and leasehold improvements of$2.4 million . Cash used in financing activities was$13.6 million for the year endedDecember 31, 2022 , as compared to$31.4 million for the year endedDecember 31, 2021 and$4.9 million for the year endedDecember 31, 2020 . Cash used in financing activities in 2022 was for payment of dividends of$10.6 million , and the repayment of debt in the amount of$3.3 million , offset by proceeds from issuance of stock of$0.3 million . Cash used in financing activities in 2021 was for the repayment of debt in the amount of$12.4 million , payment of preferred stock redemptions of$5.3 million and payment of dividends of$13.9 million , offset by proceeds from issuance of stock of$0.3 million . Cash used in financing activities in 2020 was for the repayment of debt in the amount of$132.4 million , payment of deferred financing costs of$8.0 million , payment of preferred stock costs of$7.0 million and payment of dividends of$5.2 million , offset by proceeds from the issuance of convertible preferred stock of$145.5 million , proceeds from long term debt of$2.0 million and proceeds from the issuance of stock of$0.3 million .
Amended Credit Facility
OnJuly 27, 2020 , the Company completed a comprehensive refinancing (the "Refinancing") by (i) entering into an Amended and Restated Credit Agreement (the "Amended Credit Agreement") with the other loan parties party thereto, Bank of Montreal, as administrative agent and the lenders party thereto, and (ii) consummating the issuance and sale to PSP of 150,000 shares of convertible preferred stock pursuant to the terms of the Investment Agreement (as defined below). The Amended Credit Agreement amends and restates in its entirety the Prior Credit Facility (defined below). The Amended Credit Agreement provides for a$25.0 million revolving credit facility (the "Amended Revolving Loan"), which matures onJune 30, 2024 , and a$275.0 million term credit facility (the "Amended Term Loan" and, together with the Amended Revolving Loan, the "Amended Credit Facility"), which matures onDecember 31, 2024 . The Amended Credit Facility includes a$5.0 million swingline commitment and a$10.0 million letter of credit sub-limit. Loans under the Amended Term Loan bear interest at a rate equal to, at the Company's option, either the Adjusted Eurodollar Rate for the interest period in effect for such borrowing plus an Applicable Rate of 6.25% per annum, or the Alternate Base Rate plus an Applicable Rate of 5.25% per annum. Loans under the Amended Revolving Loan bear interest at a rate equal to, at the Company's option, the Adjusted Eurodollar Rate for the interest period in effect for such borrowing plus the Applicable Rate ranging from 6.25% to 6.0% per annum, based on certain ratios. The interest rate was 10.63% and 7.25% for the years endedDecember 31, 2022 and 38 -------------------------------------------------------------------------------- 2021, respectively. The Company is also required to pay a commitment fee on the unused portion of the Amended Revolving Loan at a rate ranging from 0.5% to 0.375%, based on certain ratios. The Company is required to make mandatory prepayments of outstanding indebtedness under the Amended Credit Agreement under certain circumstances. The obligations ofAgroFresh Inc. , a wholly-owned subsidiary of the Company and the borrower under the Amended Credit Facility, are initially guaranteed by the Company and the Company's wholly-owned subsidiary,AF Solutions Holdings LLC (together withAgroFresh Inc. and the Company, the "Loan Parties") and may in the future be guaranteed by certain other domestic subsidiaries of the Company. The obligations of the Loan Parties under the Credit Agreement and other loan documents are secured, subject to customary permitted liens and other agreed upon exceptions, by a perfected security interest in all tangible and intangible assets of the Loan Parties, except for certain excluded assets, and equity interests of certain foreign subsidiaries of the Loan Parties held by the Loan Parties (subject to certain exclusions and limitations). AtDecember 31, 2022 , there was$259.8 million outstanding under the Amended Term Loan and no balance outstanding under the Amended Revolving Loan. AtDecember 31, 2022 , the Company evaluated the amount recorded under the Amended Term Loan and determined that the fair value was approximately$253.9 million . The fair value of the debt is based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy.
Certain restrictive covenants are contained in the Amended Credit Agreement, and
the Company was in compliance with these covenants as of
AgroFresh Fruit Protection Debt
OnMarch 23, 2020 , AgroFresh Fruit Protection entered into a €1.0 million loan agreement with Banco Santander, S.A., which provides funding throughMarch 2023 at a 1.5% interest rate. InMay 2020 , AgroFresh Fruit Protection entered into a €0.3 million loan agreement with BBVA, which provides funding throughMay 2025 at a 2.2% interest rate. InJuly 2020 , AgroFresh Fruit Protection entered into a €0.6 million loan agreement with Banco Santander, S.A., which provides funding throughJuly 2025 at a 2.5% interest rate.
Preferred Stock Financing
OnJune 13, 2020 , the Company entered into an Investment Agreement (the "Investment Agreement") with PSP, an affiliate ofPaine Schwartz , pursuant to which, subject to certain closing conditions, PSP agreed to purchase in a private placement an aggregate of$150,000,000 of convertible preferred equity of the Company. The transaction closed onJuly 27, 2020 , and a total of 150,000 shares of the Company's newly-designated Series B-1 Convertible Preferred Stock, par value$0.0001 per share (the "Series B-1 Preferred Stock") were purchased in such transaction (the "Private Placement"). OnSeptember 22, 2020 , following the approval of the transactions contemplated by the Investment Agreement by the necessary regulatory body, the Company issued to PSP, for no additional consideration, a total of 150,000 shares of the Company's newly-designated Series B-2 Convertible Preferred Stock, par value$0.0001 per share (the "Series B-2 Preferred Stock"). OnSeptember 25, 2020 (the "Exchange Date"), PSP elected to exchange the shares of the Company's Series B-1 Convertible Preferred Stock and Series B-2 Preferred Stock held by it for a total of 150,000 shares of the Company's newly-designated Series B Preferred Stock. Accordingly, effective as of the Exchange Date, the Company issued 150,000 shares of Series B Preferred Stock, par value$0.0001 per share, to PSP and all of the shares of Series B-1 Preferred Stock and Series B-2 Preferred Stock held by PSP were cancelled. No shares of Series B-1 Preferred Stock or Series B-2 Preferred Stock were outstanding as ofDecember 31, 2022 . The Series B Preferred Stock ranks senior to the shares of the Company's common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The Series B Preferred Stock has a liquidation preference of$1,000 per share (the "Stated Value"). Holders of the Series B Preferred Stock are entitled to a cumulative dividend at a rate of 16% per annum, of which 50% was payable in cash and 50% was payable in kind until the first anniversary of the Closing Date, after which 50% is payable in cash, 37.5% is payable in kind, and the remaining 12.5% is payable in cash or in kind, at the Company's option, subject in each case to adjustment under certain circumstances. Dividends on the Series B Preferred Stock are cumulative and payable quarterly in arrears. All dividends that are paid in kind will accrete to, and increase, the Stated Value. The applicable dividend rate is subject to increase by 2% per annum during any period that the Company is in breach of certain provisions of the applicable Certificate of Designation of the Preferred Stock. The Series B Preferred Stock has been classified as temporary equity as it may be contingently redeemable in the event of a change of control, which is outside of the Company's control.
Associated with the Series B Preferred Stock, the Company paid dividends of
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during the year endedDecember 31, 2021 . As ofDecember 31, 2022 , the Company had accrued dividends of$3.4 million . There were no accrued dividends as ofDecember 31, 2021 . The Series B Preferred Stock is convertible into Common Stock at the election of the holder at any time at an initial conversion price of$5.00 (the "Conversion Price"). The Conversion Price is subject to customary adjustments, including for stock splits and other reorganizations affecting the Common Stock and pursuant to certain anti-dilution provisions for below market issuances. As ofDecember 31, 2022 andDecember 31, 2021 , the maximum number of shares of common stock that could be issued upon conversion of the outstanding shares of Series B Preferred Stock was 34.7 million and 32.2 million shares, respectively.
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