AgroFresh Solutions, Inc.
Q4 2015 Earnings Call Transcript

Published: 14 Mar 2016

[Operator:]

Good morning and welcome to AgroFresh Solutions Fourth Quarter and Full Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. At this time, I would like to turn the call over to AgroFresh team.

[Erica Bartsch:]

Thank you operator and good morning everyone. I’d like to welcome you to the AgroFresh fourth quarter and full year 2015 investor conference call. We issued two press releases announcing a management transition and detailed fourth quarter and full year results. We will be discussing these press releases today. This call is available on our website at www.agrofresh.com. Please turn to Slide 2. The comments during today’s call 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 facts are considered forward-looking statements, these 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. In addition, during the course of this call, we will be presenting quarterly results under the assumption AgroFresh has been operating as an independent company for all of 2015, you will see in the tables in the press release in the 10-K that the financials are broken down into the Predecessor and Successor period, but we’ll be talking about full year periods. There are no additional adjustments other than adding the periods together for presentation purposes. We’ll also refer to certain adjusted financial results, which non-GAAP measures. Please refer to the table’s attach to the press release issued, which is also available in Investor Relations sections of our website for reconciliation of adjusted financial measures to the most directly comparable GAAP measures. And let me hand the call over to Steve Trevor.

[Steve Trevor:]

Thank you all for joining us today. I am Steve Trevor, an AgroFresh first Director and Former CEO of Boulevard, which acquired the AgroFresh businesses this last July. We have a number of exciting items to share today about AgroFresh’s recent performance and future prospects. Joining me on the call today is presenters Nance Dicciani, Chairman of the Board of Directors and Margo Loebl, AgroFresh’s Chief Financial Officer. Please turn to Slide 3. I would like to start with the management team just that we announced. As for our press release Tom Macphee and Stan Howell are stepping down from their positions. We thank them both for helping AgroFresh through its stand up as an independent public company and wish them well in their future endeavors. The Board has formally search committee to evaluate candidates to service the company’s next leader and which the CEO and President roles will be consolidated. We have engaged an executive search firm to assist the committee in this process. On an interim basis, the responsibilities of Chief Executive Officer and President will be assume by the office of the chair comprise of Nance and me. We will partner to lead the company with Nance focusing on business operations, while I focus on financial matters and on our investors. We were closely with the AgroFresh management to team remaining focus on our key priorities, customers and our employees and continue to execute our strategy. Nance and I want to stress that the management changes announced today are not in any way a change in the company strategy. We and all the members of the Board remain committed to growing AgroFresh aggressively both organically and through acquisitions. AgroFresh is a great business in a compelling space providing products and services that avoid waste and maintain the freshness of fruits and vegetables consumed across the globe and doing so with exceptionally high margins and asset light service model and a very high return on capital. Before Margo takes us to the financial details allow me to touch upon several of the company’s key accomplishment in 2015, all done where we stood up AgroFresh as an independent public company. As you will see AgroFresh has had a solid Q4 and full year 2015 besides facing the largest year-over-year decline in the size of Northern Hemisphere apple harvest seen in the 13 years that AgroFresh has been serving these customers. We generated 90 million of adjusted EBITDA with 55% margins and we generated 36 million of operating cash flow in the fourth quarter. We continue to implement loyalty programs across the globe, while at the same time successfully maintaining our attractive gross margins. We prepare to launch Harvista in Argentina and Turkey and are ahead of schedule in our trials of RipeLock with retail customers. We ended the year with 58 million cash and a net debt to adjusted EBITDA ratio of 3.9 times and we initiated a stock buyback program to take advantage of stock dislocation and retired some warrants. In 2015, AgroFresh also faced and addressed certain challenges. First, we undertook the important process of standing up the company and becoming fully independent of Dow and this is an ongoing process. Some of this work and related one-time expenses will extend in the 2016. Harvista implementation was delay and although it is now back on track, it is one year behind schedule. However early results from the Southern Hemisphere are especially encouraging. The strengthening U.S. dollar against most currencies resulted in a $5 million reduction in adjusted EBITDA. So where are we headed in 2016, we see continued increase penetration in apples and other fruits across all geographies while maintaining our current gross margins. We expect further penetration of our Harvista product around the globe, we will be begin commercial sales of RipeLock later in the year. We are actively pursuing potential bolt-on acquisitions, utilizing our excess cash while also reviewing transformational M&A opportunities. I would now like to turn the call over to Margaret, our CFO.

[Margo Loebl:]

Thank you, Steve. Following along on Slide 4, full year 2015 results finished at the midpoint of our previously disclosed guidance. We maintained our very strong market leadership position and our high gross margin. We also managed our costs carefully as we became a public company and worked to reduce unnecessary spend in the business as a result we generated significant cash flow. Sales were down 3% on a constant currency basis primarily driven by a decline in apple production estimated to be down 8% to 10%. Our gross margins were strong and consistent with 2014 levels at 82%. This excludes the onetime adjustments for the amortization of inventory step up that resulted from our divestiture from Dow. Keep in mind that because our products are predominantly service offerings, the cost of sales on an ongoing basis is relatively small, accounting for a strong margin structure. Research and development expenses were $17 million as planed they were $2.5 billion lower year-over-year as the company focused its R&D spend on its high potential growth projects. SG&G expenses for full-year 2015 were $35 million after excluding transaction and one-time items. This is $4 million higher than the prior year as a result of the ramp-up of recurring costs as a public company. Adjusted EBITDA in 2015 was $90 million, which is in line with the midpoint of guidance. On a constant currency basis, adjusted EBITDA declined 9% year-over-year. Adjusted EBITDA margins remained strong at 55%. Our currency adjustment for 2015 was approximately $5 million primarily driven by the euro. Fundamentally, however, the year-over-year decline was driven by the smaller global apple crop in 2015, compared to the record crop in the prior year. Non-GAAP earnings in 2015 were $0.44 per share assuming the same number of shares in the first seven months of the year as in the five months since the separation from Dow. Finally, we generated cash from operating activities of $49 million excluding $36 million of changes in income taxes payable while part of Dow. Now on Slide 5, let me touch on the results of the fourth quarter which was impacted by the smaller apple crop in the northern hemisphere as well as the shift in the timing of the harvest into the third quarter of the year. Coupled with foreign exchange headwinds these dynamics contributed to a decline in sales and adjusted EBITDA in the fourth quarter year-over-year. Adjusted EBITDA was $27 million in the fourth quarter and non-GAAP earnings per basic share was $0.29. We generated $36 million in operating cash flow in the fourth quarter and maintained a robust financial in the liquidity position Please turn to Slide 6, the balance sheet at year-end reflected the effects of the transaction with Dow that closed in July 31, 2015. We finished the year with $58 million in cash and $406 million in long-term debt with a 3.9 net debt to EBITDA ratio. I want to briefly review Slide 7, with respect to the 2015 outlook we are estimating sales growth of 5% to 12% for the full year 2016. We're also giving guidance for full-year 2016 adjusted EBITDA of $90 million to $100 million. Free cash flow for full-year 2016 is in the approximate $35 million to $45 million range. More specifically, we served the southern hemisphere in the first and second quarters of the year and this is a much smaller part of our business. In the third and fourth quarters, we served the northern hemisphere which constitutes the majority of our business. Quarter one 2016 performance thus far is consistent with our full-year 2015 guidance. SmartFresh results in New Zealand, South Africa and Chile appear to be trending nicely while Brazil and Argentina have been somewhat impacted by the ongoing drought in those countries. As mentioned earlier, Harvista in Argentina is doing very well and we're pleased with the success of the launch. Our priority for 2016 includes increasing penetration of apples and other food in new geographies while maintaining current gross margins. Further penetration of Harvista beginning commercial sales of RipeLock and actively pursuing acquisitions, we continue to be enthused about the prospects for AgroFresh going forward. Now let me turn it over to Nance, the Chair of the Board.

[Nance Dicciani:]

Thank you Margo, and would you please turn to the Slide 8. Let me start with a brief introduction. I am Nance Dicciani, non-Executive Chair of the Board of Directors of AgroFresh. I spent seven years as President and CEO of Specialty Materials at Honeywell. I also currently serve as a member of the Boards of Directors of Halliburton, Praxair and LyondellBasell, and was the lead Director of Rockwood Holdings when it was an independent public company. Earlier in my career, I was involved in R&D and I have a PhD in chemical engineering. As mentioned previously, Steve Trevor and I were together comprised the office of the chair which will lead AgroFresh during our search for a new CEO. I have always regarded AgroFresh as a high potential business with broad applicability to address one of the world's most pressing problems food, its quantity, its quality and its safety. I had the good fortune to be at Rohm and Haas when AgroFresh had its start. I was enthusiastic about its potential then an even more so now. Our pipelines of new products along with our opportunity to expand geographically and add more fruits and vegetables to our amenable market gives AgroFresh the ability to flourish and grow for many years to come. We look forward to identifying and transitioning to a new leader and delivering strong financial results to our shareholders. For closing remarks, I’d like to turn the call back to Steve.

[Steve Trevor:]

Before we open the call up for Q&A. I want to highlight a few specific points on Slide 9. First, I want to emphasize that the announcement of leadership changes today does not mean that AgroFresh’s business priorities will change in any way during this interim period. In fact, the current team is fully focused on executing our growth strategy and working to achieve our stated goals. Second, we believe the company benefits from the following key drivers. AgroFresh is a great value story. A currently trades in multiple of 6.5 times 2015 adjusted EBITDA and is a free cash flow yield of 15%, both of which we believe to be blow the company’s intrinsic value. We reduce loss with an important part of the produce industry, which is a very significant issue highlight by the fact that more than 45% of all produces is wasted before it makes it on to the dinner table. We are set apart by several significant competitive advantages including our service model, a diverse and loyal global customer based and an exceptionally high margin in capital efficient business model. We now look forward to your questions. Operator, please open the line. Thank you.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Daniel Jester with Citi.

[Daniel Jester:]

Maybe first for Steve and Nance. Can you elaborate a bit on what are the qualities that you’re going to be looking for the next CEO of AgroFresh?

[Nance Dicciani:]

Certainly, thank you very much and good morning everyone. As I mentioned earlier, we are now at a pivot point, we’ve gotten the business setup over the last seven months and we are now focusing or refocusing on our strategy of growth. As I mentioned, I have the good fortunate being at Rohm and Haas when AgroFresh was first started. And what we want to do now is to reignite that entrepreneur spirit and get back to the growth creative mindset that we had when we first started the company. And so in that regard as we look for a new CEO, we’re looking for somebody with the entrepreneurial spirit and the background of proving growth capabilities, we certainly want someone that will fit culturally with the AgroFresh business model. We need someone, who is able to communicate effectively with the street and we have to find someone who has a very strong growth mentality. And as I mentioned, we’re both, looking for both inorganic and organic growth going forward. This is a very unique business and we need someone, who is very unique to lead it forward.

[Daniel Jester:]

Great. Thank you.

[Steve Trevor:]

Just one or two comments from Steve. I think that, this has really growing every year in its history with the exception of one, it’s going to continue to grow quite successfully going forward. We’re highly, highly confident in the broad operational team that we have, that has built this business model. And we do think that what AgroFresh does is unique and that we want to continue to reinforce that approach, which is to be a problem solver in an industry that has very attractive long-term trends, but we’re being nimble and quick and creative in our approach, is one of the key things that differentiates our culture and our capabilities.

[Daniel Jester:]

It’s helpful, thank you. And then maybe a couple of questions for Margaret on the guidance. Can you just confirm, is the $90 million to $100 million EBITDA and the 5% to 12% sales growth, does that include or exclude FX?

[Margo Loebl:]

It’s a good question. Thank you, Dan. The way I think about this guidance as CFO of the company is, I think about what we do we have to grow this business, we have new products coming on, we have an organic plan to grow the business. And I think about those initiation as an example of Harvista successfully in Argentina, I think about what we have to grow. And then I think about okay, we have the variables that we can control and that FX and the crop size and the weather, that these are two typical things in our business. All that is factored in as we came up with this range. And as a reminder, you’ll hear from the CFO is yes, we will control the controllable and that being the costs.

[Daniel Jester:]

Okay. So just to clarify, I just want to make sure that we’re thinking about things on a like-for-like basis. So despite 12% growth, that sounds like you're saying it's inorganic [ph] and then FX would have an impact above and beyond that.

[Margo Loebl:]

Yes.

[Daniel Jester:]

Okay and then maybe just update us on your thinking about the ramp up for the new products. I think previously you articulated the goal of $140 million of sales from these new products over the next five years, any change in how you're thinking about that and kind of -- maybe walk us through a couple of products and how you see the evolution of that happening in 2016?

[Steve Trevor:]

This is Steve. So I think we feel very confident that portfolio of opportunities that the Company has in front of it remains very strong and it's something that we have committed ourselves to executing on and just to remind you the core business has ongoing -- in terms of our SmartFresh franchise has ongoing opportunities to expand by geographic market, it increases penetration and we've been fairly clear with the people in terms of where those opportunities are and how we're pursuing them, notably we had very-very market share in North America and we have strong market share in Europe, but not as strong and so that's a large opportunity, but there are certain geographic markets that we will continue to develop in area where the Company hasn't in the core franchise. In addition, Harvista is a product that we really believe reinforces the services offering that we have to the global apple industry in particularly and that is a product that is slightly behind our initial forecast where we have really refocused the management team on driving its success this year, we have been watching very closely what's happening in the southern hemisphere just in terms of an indicator for our business, but in particular for Harvista and as Margo highlighted in her comments that business look like it's performing well within our expectations and we're feeling very confident about it. The next opportunity we've highlighted to people is RipeLock that's an effort to expand and diversify a bit away from some of the core markets that we've served and there as again we've highlighted we see progress coming over the course of 2016 in terms of customers adopting that product and there are other opportunities in the future that we've gone through with people, but we see is those building blocks are very important part of our future. Nance and I are committed to working the management team to make sure that we accelerate and prioritize appropriately, but we're executing into the planned that you've heard about it in the past.

[Nance Dicciani:]

I'd like to add just a couple of things to that, this is Nance. First of all, we continue in our research and development organization to look at the application of our products and our services to new fruit and vegetables, so we've got some new ideas along those lines which is still in the R&D stage that I am personally pretty excited about. I think it's also fair to indicate that as we move forward we will be looking for perhaps licensing in opportunities where we're looking for alliances that may sense that we would add to our portfolio in order to better service our customers and certainly acquisitions that make sense and I think I just want to underscore that our strategy in all these areas really hasn’t changed.

[Operator:]

Your next question comes from the line Brent Rystrom with Feltl.

[Brent Rystrom:]

Could you give us a little more detail on kind of how you plan to rollout RipeLock this year?

[Steve Trevor:]

Sure, so the plan with RipeLock really has been to develop a series of relationships with trial customers. So as you understand custom based here is different from the customer base in our core SmartFresh franchise. And what we have to do a good job of is working within a large and well established supply chain in particularly focused with the global banana industry and -- so the effort has been multipronged, one part of the effort is being sure that the customers which are large and demanding customers have the validation of the product’s effectiveness and that is basically customer-by-customer efforts to help them, demonstrate to themselves value that the RipeLock delivers. The second thing we need to do with that business though is because as packing solutions scale that matters so we have them working to make sure that from a scale and a cost perspective, we were taking appropriate steps early in the year to have the rollout launch at a scale that's going to be consistent with business models and then over the course of the 2016 our expectation is that the adoption by some of these lager customers both in the U.S. and Europe will go forward and begin to impact our financials.

[Brent Rystrom:]

Thank you and do you have an update, I know previously when I had talked with you folks that you were looking at some possible organic certification in North America any updates on that?

[Steve Trevor:]

The organic issues obviously are very consistent with our business model, so we do something that is very consistent with sustainability and wellness on a broad basis, but the question you are asking is really about some specific issues both in North America and Europe as to whether the product that we had can gain or organic certification and the view that we have articulated and the view we continue to believe is that there is a distinct possibility that we may ultimately achieve that certification in North America. I think the challenges in Europe particularly was higher, but we don't have new information it’s a long process that we have to go through to probably secure that and this process has been going -- ongoing and it’s something that we could see continually over the course of 2016.

[Brent Rystrom:]

Alright. The next question might be a difficult one now you given the limited history of all buzz and I’m just trying to think out loud, we're in the very strong Alemania [ph] that has just impacted in North America obviously with the different winter than they normally experience. Lots of data coming out -- data this week out of the NOAA that’s saying that basically we’re likely to transition, much more likely the transition into Alemania stronger and earlier. So that means hotter and dryer weather coming to the U.S. and to South America is likelihood. Do you have collective knowledge that you can share with us in previous strong Alemanias 2011 and '12 would have been Alemania years, how has that impacted your business?

[Steve Trevor:]

And let me share few comments with you, they're relevant to your question. And we watch very closely and have worked hard to describe to our investor base and our key stakeholders, how our business model works and I think your question is sounds like it's focused primarily on our core SmartFresh franchise.

[Brent Rystrom:]

Yes.

[Steve Trevor:]

And what we have observed overtime as I think we've shared is that because we have a global business, these weather impacts tend to be muted or moderated by the fact that for example, this year we foresee a record apple crop in New Zealand and yet at the same time as we’ve highlighted in Brazil and Argentina we have a -- perhaps they are more challenged by weather conditions. It is just simply too soon to give you a real comment, although we watch every element and monitor continuously every element of what's rolling forward in terms of the crop in North America because it's our largest market, so we watch the bloom, we watch what growers are seeing, but I don't think we're in a position to give you guidance in terms of weather patterns that we would view as statistically significant that you could use for financial modeling.

[Brent Rystrom:]

Alright. My final question pertains to both the CEO search and strategy. It will be focus of the search and refocus for the strategy primarily on agricultural chemicals or is it more to just be a chemical company?

[Nance Dicciani:]

No, the strategy of the AgroFresh is not changing at all. We've been talking about the concept of food before we've been talking about the concept of providing growers with good service that will improve the quantity and quality and the storagability of their products and that's not going to change in the future. So we have no intention to becoming a chemical company in -- what I think your meaning is, we're staying focused on the things that we do well which is provide good service to the agricultural area. As Steve mentioned earlier, our business model is the unique model. We go direct to our customers, we provide service in ways that a typical agricultural company does not and we intend to maintain that competitive edge which comes from that uniqueness going forward, so there is really no change in our strategy, we're not becoming a chemical company per se, no.

[Brent Rystrom:]

Thank you very much.

[Operator:]

Your next question is comes from the line of Adam Richie with [indiscernible].

[Unidentified Analyst:]

Just a couple of things, could you talk about your buyback? I know you announced a 10 million buyback few months ago, how much that you bought back so far?

[Steve Trevor:]

Yes, so with the board announced was a $10 million buyback, I believe we announced that in the fourth quarter and we have executed again that and bought back a couple of million dollars and of shares so far and that commitment remain outstanding although one of the things that we're going to doing in this interim period is just kind of carefully looking at everything, so I think from our perspective the stock buyback remains an opportunity for the company. We think it's a very efficient use of our capital, but there are also other things that we highlighted in terms of our growth strategy that we want to maintain flexibility to pursue.

[Unidentified Analyst:]

Got it and in terms of your free cash flow guidance, can you walk us through how you get there versus your EBITDA guidance?

[Margo Loebl:]

Yes, we can. The way we think about it is, you can take our EBITDA and you can look at what your thoughts around EBITDA will be inside that range, we take out what's your expectation for taxes, we take out what is our expectations interest and debt repayment and we look at capital expenditures.

[Unidentified Analyst:]

I realize that. Could you give me those exact figures please? And how much is your interest expense going to be? What are your CapEx expectations and what kind of cash taxes would you normally pay?

[Margo Loebl:]

Absolutely, absolutely. We have interest in approximately $25 million, we have debt amortization of approximately $4 million. We have expectations of CapEx of approximately 2% of sales. And that is from a cash tax perspective, collectively between the governments and the Dow tax receivables remember we planned approximately 37%.

[Unidentified Analyst:]

Okay. So that is your full cash tax rate, there is no ways to reduce that, there is no depreciation expenses that’s your full cash tax payer?

[Margo Loebl:]

That would be the full amount if we paid load. We obviously try to pay -- work to pay less.

[Unidentified Analyst:]

Okay, got it. And last question I had in terms of your free cash usage. In terms of acquisitions with your stock these levels 6, 6.5 times EBITDA. Are you willing to make acquisitions at a higher multiple than that?

[Steve Trevor:]

So our strategy from a very beginning is than, this is business it’s all about growth, it’s a business that needs to grow organically in the ways that we’ve described. But it’s also a company that’s going to be a much stronger company as it broaden and diversify its product offering. And so that means we need to serve more end markets with a more diverse set of solutions overtime. That is an absolutely central element to the strategy that we are and we’ll continue to execute.

[Unidentified Analyst:]

Okay. So you basically, you’ll be willing to take near-term dilution for longer term growth?

[Steve Trevor:]

So, so far obviously we have chosen not to make that trade off. But I want to be very clear that, we think it’s very important for the company to maintain the flexibility that for the right business or the right opportunity, we keep very open and dynamic perspective on this, which is the single thing we -- one of the most important things we can do to enhance the success of the company, is continue to execute against that part of our strategy.

[Unidentified Analyst:]

Got it. Okay. Thanks very much.

[Operator:]

Your next question comes from the line of Stephen Errico with Locust Wood Capital.

[Stephen Errico:]

I’m travelling so I only saw the press release. Can you just tell me the material weakness that you talk about in your 10-K. Does that have any impact on your covenants and can you go over any covenants that maybe impacted by management changes or this material weakness with your debt covenants? Thank you.

[Steve Trevor:]

Yes. So let me start with the material weakness. This is a technical disclosure, it’s important, but does not say there is anything wrong with our financial statements. The financials are audited by D&T and are no qualifications in their audit opinion. However, we have known and have been continuously working to improve the controls and reporting as we’ve highlighted in terms of the process of standing up -- executing this carve out and standing up this company over the last five months as a public company. And so were we have very detailed plans that existed before this snapshot in-time of a 10-K, this is something that is well underway in terms of addressing in a serious and detailed way. As it relates to second part of your question in terms of any impact on our debt structure or our covenants, the answer is no, there is no impact in terms of our financial discloser or the discloser about the management changes on our debt structure.

[Margo Loebl:]

Let me just build on that for you, as CFO of the Company I was brought on pretty close to the onset, straight on to manage controls effectively in an organization and I have quite tract record of doing so. So we're way ahead of this as far, we have a plan, we have a time line, we're executing on it and as Steve said this is a snapshot in time, this is where we are in our carve out situation in we're ahead of it and moving. So I want to give you that confidence.

[Stephen Errico:]

Since you brought up the timeline, could you share with that with us and what is your timeline to have this resolved?

[Margo Loebl:]

We would like it resolved as soon as possible, obviously. It's an ongoing journey, the entire buildup of the financial infrastructures over the next -- the majority of it is over the next 12 months.

[Operator:]

Your next question comes from the line of [Indiscernible].

[Unidentified Analyst:]

You've talk a lot about RipeLock and Harvista in your guidance, could you speak a little bit about assumptions about performance of core products SmartFresh and how it boils into your adjusted EBITDA guidance?

[Steve Trevor:]

Could you just add a little bit more to your question, I want to make sure we're answering the question you're asking.

[Unidentified Analyst:]

Yes, absolutely, I would add. You've talked a lot about RipeLock and Harvista and it looked it you're avoiding conversation about SmartFresh and given the entrance of your play into this space, meaning pace, people I assume would be asking questions, are you budgeting in your adjusted EBITDA guidance, which is a low EBITDA on the highest sales, are you really budgeting significant either pricing pressure or volume losses in your core business?

[Steve Trevor:]

Right, so this a topic that we again in the past hoping a quite a bit about. So the existence of competition is something that the Company has dealt with over a number of years and as I am sure you're aware about quarter of sales are in markets where we don't have any kind of patent or other protection that we have the same margins in those markets. I think that we have been watching quite closely what's been going on with pace and we obviously respect all of our competitors, they have a different solution and over the course of the 2015 they did not make what we've viewed as material progress in terms of impacting our market share in any way that was discernable or things that we can discern in terms of risk to our business model or pricing structure. So as we approach 2016, we have highlighted that there are certain things that we have had to make allowances for such as weather and foreign exchange changes. I think the way I would describe to you this issue is we're constantly monitoring and observing our position as a leader in the market and as somebody who has always had to manage a certain level of competition. But there's nothing in our guidance thats sort of cautiously optimistic on -- in terms of how we're approaching things, realistically I would say, but I’d say there is no message in terms of issues that we see for the core business that would lead you to conclude that there is either a problem with pricing pressure or market share decline.

[Unidentified Analyst:]

And on your capital allocation policy, you've already mentioned the tradeoffs between buyback and acquisitions, in terms of if you decide to pursue further buyback how do you think about pursuing buying shares versus warrants because if you believe what you probably believe at the time of acquisition then warrants are probably more appealing?

[Steve Trevor:]

Right, so let me just talk a little bit from a high level about capital allocation, and I am sure you noticed at last year we actually did both, so kind of pre-request the Company has strived to be very nimble and flexible not just in the way it operates but also in how we approach the financial opportunities that we have in front of us. There is a longer term process obviously in terms of the warrants that part of the Company's financial structure and that's something that we do pay attention to as part of the broader capital allocation. But the things that we care about in the order that we care about them are making sure that capital is available to do the continuous investment in R&D that we've highlighted to your so just to remind you that something like 8% of sales. We have modest CapEx as we've highlighted so that's a few million dollars a year of CapEx and the remain capital obviously is there to go against the highest return of opportunities that we have, in the short run given the share price dislocation last year, it was our judgment that both buying warrants and shares was something of the company and could prudently do and was appropriate in terms of both our financial flexibility and the investment returns and benefit to our shareholders. I think as we look forward, we are very committed to continuously both improving the investor communication and the trading level of our stock, we think that's very important, strategically it's very important commitment that we have to viewed as key stakeholders in our business and -- but we'll continue to do in the future what we've done in the past, which is being nimble and dynamic and observed where the best opportunities are for coming in the short run and that depending on trading levels could evolved between the warrants and the common shares.

[Unidentified Analyst:]

Okay, thanks and could you explain in a clear way, where in our opinion Tom and Stan failed as the executive leadership of the company because five months or seven months after intervene public, two most senior managers stepped down, it’s a significant event. So could you explain where exactly they failed and where the board was unhappy?

[Steve Trevor:]

So, let me just share with you a few thoughts. First of all Tom and Stan are people we hold in very high regard who did a superb job for this company in terms of helping us execute a large carve out and stand up the public company. From the Board's perspective, any change to management is about executing our strategy, and as Nance highlighted, our strategy is really about a management approach and a form of growth and that we believe now is the right time that we have the flexibility to move forward and to make change and do that -- change is never easy, there's never a good time to make one of these management changes and we'll be the first to acknowledge that. But we've a responsibility to do what's right for the company that pursue the opportunity that in front of the company and what we need right now as a business is to execute rapidly and efficiently on these large number of growth initiative that we've spoken you about and as a result we're going to make sure that we provide the company that resource in the short-term and to drive that growth.

[Unidentified Analyst:]

Okay, thank you and one question for Margo, about your tax rate and your reference to the full tax rate, could you just help me understand something, I was under the impression based on the prior disclosures that at the time of acquisition election 338(h)(10) was made. As a result you have a step up in basis which would create a significant tax benefit for AgroFresh, 85% of that benefit will be paid out to Dow Chemical. However, you will retain those 15% of a benefit that should at least on my math result in a tax rate that is not a full corporate tax rate, could you tell me, what I'm missing here?

[Margo Loebl:]

I think you are on target, as I noted we do look for the opportunity to be something less than 37%, I look at that as a top level. So with that 15% benefit we get, we will be looking for something just under 37%.

[Operator:]

Your next question is comes from the line of Stefan Mykytiuk, ACK Asset Management.

[Stefan Mykytiuk:]

A couple of questions, I guess just speaking a little bit more on the guidance, I want to clarify, so the revenue growth of 5% to 12% and the 90 million to 100 million of EBITDA that's on a constant currency basis?

[Margo Loebl:]

No, that variance that we have is reflective of currency.

[Stefan Mykytiuk:]

So within the range is the currency impact --?

[Margo Loebl:]

The impact of currency, yes.

[Stefan Mykytiuk:]

Okay and then in the first half of the year, it seems to me that both in Latin America and then even in Australia and New Zealand you have a fairly substantial currency headwind, so are the crops coming in that much better that you say the full -- the first half or the Southern Hemisphere should be in line with the guidance, but it would seem like you need a fairly decent production increase in those markets for Harvista adaption to overcome what’s at least to double-digit decline in the Australia and New Zealand dollars and then something in the 20% or 25% decline in the Latin American currencies.

[Margo Loebl:]

Let me help you with how I think about this in my role in putting it in perspective. I look at that business overall as follows. I look at it, that I serve two Hemispheres. I have two half’s of the year. In the first half of the year, we serve the Southern Hemisphere and then in the second half the Northern Hemisphere. And the Southern Hemisphere is a very -- a relatively small part of our business. If I look back and I think it’s really a good opportunity to bring it up here. As I look at the percent of EBITDA in 2015, it was approximately 20% in the first half of the year and 80% in the second half of the year. So in the broad picture, when you point to one single market in the Southern Hemisphere, it’s a relatively small piece of our picture and our portfolio. So that’s how I’m able to factor that kind of thinking into it.

[Stefan Mykytiuk:]

Right, right. I appreciate that, I’m merely -- given the fact that the Northern Hemisphere results or so back half loaded in the year. I’m just trying to get some clarity on what we might expect in the first couple of quarters. So that when you report those, even though they are a small part of the full year, if they’re down year-over-year than we don’t get another negative reaction like we saw in the fall, when we found out that the crop was going to be smaller. That’s really what trying to do, it just trying to vet the knowable, so that people understand what’s coming and don’t feel like they get blindsided, so I appreciate the input. And then just a little more clarity. What are your -- can you give us some sense of -- I know you can’t predict the weather, but you obviously had to have some assumptions around weather, to come up with the guidance. So what kind of range of outcomes or you’re planning for in terms of the North American crop, the European crop and then the plan last year was the double Harvista, is that contemplated now in 2016 underlying the guidance? And then lastly RipeLock, you’re talking about launching and commercially in the back half of the year, are there revenues build into the plan for RipeLock or those more 2017 event?

[Margo Loebl:]

Got it, okay. Three pronged question on 2016. As far as from a weather perspective, I broadly, in my role, I think about revenue and I think about reverting to a trend line. And on a trend line basis, we generally -- that’s separate from weather, but on balance overtime, what would I look for? Approximately a little over 2% growth year-over-year from a trend line perspective as a baseline sound center thinking. And then I look at whether upside or downside from that kind of thinking. And that’s what we’ve contemplated in our guidance. Then I think your second question is good, yes we are looking to aggressively build year-over-year progress on Harvista and approximately doubling that 2015 revenue level in 2016. And then finally your question with respect to RipeLock, yes I do expect to see a small amount of revenue in the current year in the back-end of the year for RipeLock, as we initiate that product optimistically.

[Stefan Mykytiuk:]

Terrific. Okay, thanks for the details.

[Operator:]

This ends today's Q&A session. And this concludes today's AgroFresh Solutions' fourth quarter and full-year 2015 earnings conference call. You may now disconnect at this time.