AgroFresh Solutions Inc (AGFS) 2018 Q4 法說會逐字稿

Good afternoon, and welcome to the AgroFresh Solutions Fourth Quarter and Full Year 2018 Conference Call. (Operator Instructions) Please also note, today's event is being recorded.

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

Thank you. Good afternoon, and welcome. Today's presentation will be led by Jordi Ferre, Chief Executive Officer; and Graham Miao, Chief Financial Officer.

The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts, are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of the risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures. Please refer to the tables attached to the slides that accompany this presentation as well as the press release, which can be found in the Investor Relations section of our website agrofresh.com for reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures.

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

Thank you, Jeff, and good afternoon, everyone. Please turn to Slide 3. For full year 2018, we generated a 9% increase in total revenue versus the prior year and reached $67 million in adjusted EBITDA. 2018 was a transitional year for the company. There was focus on creating business diversification as well as implementing initiatives that we believe will bear fruit in 2019, and deliver material improvement in our operating cost structure going forward.

Diversification's initiatives into new crops and products represented over 1/3 of our 2018 revenue, with revenue outside of apples growing 13% for the full year 2018. This growth was led by Tecnidex, and its comprehensive portfolio of fungicides, coatings and waxes, which enjoyed accelerated sales in the second half of the year, and grew 9% for the full year versus 2017 on a pro forma basis.

From a geographic-mix perspective, revenue generated outside North America represented approximately 75% of the company's total revenue. Europe is our largest region with over 40% of sales and is being driven by the addition of Tecnidex citrus business, along with increased penetration in pears. We also continue to build a very diversified global customer base with our top 10 customers representing only approximately 15% of our revenue. Collectively, these aspects of our diversification strategy help offset a weaker apple crop in the Pacific Northwest during the fourth quarter. As we look towards the future, we continue to focus on delivering a more cost-efficient operation that will support our growth initiatives, which are comprised of organic, acquisitions and strategic partnerships. These growth initiatives will allow us to broaden our product offering and provide us with entries into new geographies, both of which we expect to help in our efforts to create further diversification in our business. To deliver organic growth, we are proud of our regulatory capabilities as an enabler to new product launches and geographic expansion. The recent registration approvals for Harvista and LandSpring are examples of the opportunities we continue to create through our registration capability. Harvista received approval in Australia, following our global registration strategy for the expansion of this key product. LandSpring just received approval for tomatoes in California, which now give us comprehensive coverage of the entire U.S. tomato market. The expansion into California opens a market where approximately 80% of U.S. tomatoes are grown today.

Please turn to Slide 4. SmartFresh revenue saw an overall decline of 14% in the fourth quarter of 2018 versus the prior-year period and was down 3% for the full year 2018. SmartFresh revenue was essentially flat for the year, excluding the impact of foreign exchange and the ASC 606 accounting standard for deferred revenue. We saw improved dynamics in 2018 in the European apple markets, with a crop recovery versus last year in Germany and Belgium, and penetration increases in Italy, France and Portugal. We also have broader traction in crops outside of apples led by pears. The Pacific Northwest region of the U.S. was negatively affected during the fourth quarter 2018 by a smaller and earlier apple harvest. Specifically, apple production by our estimates contracted approximately 15% in the Pacific Northwest for 2018.

Additionally, many of our customers experienced a difficult cherry season due to the current trade dispute with China, which coupled with lower-than-normal yields in apple put additional pressure on pricing and adversely impacted utilization of post-harvest solutions.

Next to our broad global geographic diversification, the effects of a weak apple season in the Pacific Northwest were offset by growth in other markets, crops and products. In fact, our Pacific Northwest SmartFresh business today represents less than 10% of the company's total revenue. We believe that 2019 will be a better season in that region with new product solutions being introduced in a more aggressive approach to Harvista expansion.

Please turn to Slide 5. Tecnidex contributed $18 million of revenue growth for full year 2018 and served as a catalyst to change our culture from a 1 crop, 1 technology company to a more complete post-harvest business that includes a broader set of solutions such as fungicides and coatings and provides access and know-how into the citrus market. This additional expertise was particularly impactful since we estimate citrus to represent about 60% of the core global post-harvest market. As I previously mentioned, Tecnidex saw solid growth in the second half, and we expect this to continue into 2019.

Diversifying our core business to a broader crop and product base is central for our operating strategy, and we saw continued progress on this front in 2018. Within our core SmartFresh portfolio, we continued to increase penetration of the pear market. For example, in Argentina, Chile, the Netherlands and Belgium, pear revenue was up double digits, collectively adding approximately $3 million in revenue growth versus the full year 2017. For full year 2018, the proportion of revenues from crops other than apples increased to 30%, with the primary drivers being citrus, pears, bananas, avocados, cherries, plums and melons. This compared to just 19% in full year 2017. Our regulatory strength is key to expanding the addressable market for our product offerings. The most notable approvals since our last investor call are: first, the SmartFresh registration in the U.S. was amended to allow co-treatment with our ActiMist foggable fungicide solution. This is a key approval especially, for the Pacific Northwest since it will support our service bundling strategy.

Second, SmartFresh ProTabs today represents 60% of our total SmartFresh revenue. We have continued to expand ProTabs approvals into other crops in Europe such as melon, peach, nectarine, apricot, pear and kiwifruit. We anticipate ProTabs will continue to increase its share of SmartFresh applications in 2019. As a reminder, ProTabs are under patent protection through 2022.

Third, LandSpring. This is a product applied in the nursery to better manage the stress of transplanted seedlings into the field. We obtained approval in 2016 for [infusing] tomatoes in the eastern half of the U.S. and have recently extended this approval to California, which represents 80% of the total U.S. production, opening an approximate $5 million to $6 million addressable market. We sell LandSpring through a third-party with limited dedicated internal resources and enjoy attractive gross margins.

And four, we achieved our first sales to SmartFresh in India, and are running customer trials in anticipation of the future approval in that market.

Please turn to Slide 6. Harvista is our near harvest synergistic solution that complements SmartFresh. Harvista helps slow respiration and the ripening process while the fruit is still on the tree, promoting fruit firmness and quality for an extended period. For the full year 2018, sales of Harvista were down 7%, driven by the negative factors in the Pacific Northwest that we have touched on earlier.

However, we strongly believe that we will return to growth in 2019 based on the positive results our customers continue to experience when applying Harvista. We will couple this with a more aggressive commercial effort that will include the appointment of a pre-harvest distributor to expand our acreage reach. We also see expanded growth for Harvista in other regions and in other crops, such as cherries in the United States, where successful trials during 2018 indicated an average 10% increase in yield, which is significant. Additionally, expanded regulatory approvals for Harvista have continued with the additions of blueberries in Chile and the recent approval for apples in Australia. The total addressable global market for blueberries is approximately 120,000 acres and for pome fruits, which include apples and pears, we estimate the global addressable market is almost 900,000 acres. Concerning Australia apples, we estimate it represents an addressable market of $8 million to $10 million.

Please turn to Slide 7. Tecnidex is a regional leader in the post-harvest citrus segment that is providing AgroFresh crop and technology diversification via its established portfolio of fungicides, coatings and waxes. Expanding into fungicide is the key driver of our product diversification strategy. Since this product category currently represents approximately 20% of total post-harvest market sales, with a high penetration in global citrus and apples in the U.S. Tecnidex contributed $21 million of revenue in the full year 2018 and grew 9% on a pro forma basis for full year 2018. The strong performance in the fourth quarter was supported by a fully integrated portfolio and alignment within our sales team. We were able to leverage Tecnidex deep expertise and long-established relationships with key fungicide producers to launch into cherries in Chile, and we are planning to expand into apples during 2019. Additionally, we are planning to initiate pilot sales in 2019 with citrus customers in California and aim to accelerate expansion in 2020. Together, this collective efforts give us confidence that we will be able to continue to deliver meaningful growth for the Tecnidex business in 2019.

Please turn to Slide 8. RipeLock is the ideal solution to expand the yellow life of bananas another 4 to 6 days and reduce shrink for the retailer. Although still growing from a small base, our RipeLock revenue more than doubled for the full year 2018 compared to the prior year. During 2018, the RipeLock solution was used in about 1,800 grocery stores worldwide, 700 more than the previous year. In 2019, we are expecting further expansion of those number of stores as we enter new markets such as Australia. In fact, we currently have more than 10 ongoing trials with large retailers in the U.S., Europe and Australia. The collaboration with Del Monte has been key to expanding our pipeline and reach into the U.S. grocery market. We have also initiated the strategy to expand RipeLock into other crops such as broccoli and avocado. And during the second quarter of 2019, we are planning to run tests with potential customers. Both are among the highest growing and more profitable fresh produce categories. We continue to develop our new product pipeline through internal R&D and through strategic partnerships. We will have more news on these initiatives in due time.

Please turn to Slide 9. In July 2018, we officially launched FreshCloud, our cloud-based platform for monitoring produce quality through the supply chain. FreshCloud provides key data about food freshness and health that can be translated into actionable insights that help customers along the fresh produce supply chain to maximize their return. As data-backed solutions become a standard that transforms the post-harvest industry, we believe AgroFresh is in an ideal position to lead these initiatives, based on our decades long proprietary global data collection and technical expertise. We are leveraging our ongoing Pagoda collaboration to monitor quality and predict shelf life for fresh fruits, including cherries imported into China. Although FreshCloud revenues during 2018 were modest, we expect to make progress in 2019 as we continue to expand and build our digital platform.

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

Thank you, Jordi, and a good afternoon to everyone on the call. Please turn to Slide 11. Let me review the financial highlights for the fourth quarter and the full year of 2018, beginning with net sales. I would like to remind everyone of the geographic seasonality of our sales throughout the year. Sales in the southern hemisphere are concentrated in the first half of the year, and the sales in the northern hemisphere are concentrated in the second half of the year. As a result, our fourth quarter is positively influenced by our SmartFresh franchise in the northern markets.

Now turning to the financials. Net sales for the fourth quarter of 2018 decreased 1.5% from $54.1 million to $53.3 million compared to the fourth quarter of 2017. Despite a decline in North America, our business benefited from the global reach and ability to serve customers worldwide. Europe's core post-harvest SmartFresh business delivered strong 21% growth year-over-year. As a reminder, Europe represented 40% of our overall company revenue in 2018. Tecnidex, a business, which we acquired a controlling interest in December 2017, to complement our post-harvest portfolio, generated 7% revenue growth to $7.8 million in the fourth quarter 2018 versus the same period last year. As Jordi mentioned in his remarks, our North America SmartFresh business was impacted by several factors in the fourth quarter, including a smaller apple crop size and the shorter season that affected both SmartFresh and Harvista.

For the full year 2018, net sales increased 9% to $178.8 million. The increase was driven by the addition of Tecnidex, which contributed growth of $18.1 million, along with SmartFresh growth in Europe, partially offset by declines in the Pacific Northwest of the United States. Due to our ongoing diversification strategy and the addition of Tecnidex, SmartFresh sales in the Pacific Northwest represented less than 10% of the company's overall revenue in 2018. For the full year, Tecnidex delivered $20.8 million in revenue, representing a solid 9% growth year-over-year. This acquisition has performed well for us and has expanded our post-harvest services to the citrus market. We have begun to take advantage of opportunities to leverage the Tecnidex products into areas such as the Americas where AgroFresh already has strong customer relationships.

Now let me add additional color to the net sales drivers. As a reminder, the 9% revenue growth for the full year included Tecnidex. Total organic sales without Tecnidex were approximately $158 million, representing a 2.4% decline in the full year 2018 versus 2017. Foreign exchange driven by the euro, and the impact of deferred revenue from ASC 606 had a combined effect of a 1.5% reduction in sales. Excluding the impact of foreign exchange and ASC 606 accounting, our base business remained essentially flat.

Please turn to Slide 12 where we will discuss margins. In the fourth quarter, our gross margin was 74.9% and it was consistent with expectations as we execute our strategy of diversifying revenue mix with a broader assortment of product solutions, such as Tecnidex, Harvista and the RipeLock. For the full year 2018, gross profit increased to 1% to $132.5 million compared to the full year 2017. Gross margins for the full year 2018 decreased to 74.1% from 80.1% in the prior year, also reflecting our diversification initiatives, strategic pricing in the core business and the impact of ASC 606 deferred revenue.

Turning to Slide 13. We continue to be focused on cost optimization to create greater efficiency for our business, and to better align our operating structure with our revenue base. We began to see the results of these initiatives in the fourth quarter of 2018, where operating expenses, including R&D and SG&A decreased 9% to $19.2 million versus the prior year. Excluding Tecnidex, which added $3 million, operating expenses were down 15% to $17.6 million in the fourth quarter compared to prior year. On a full year basis, operating expenses increased to 5% to $79.6 million, driven by the addition of Tecnidex. Excluding Tecnidex, which contributed $6.4 million operating expense, were reduced by 2.5% to $73.2 million for the full year compared to 2017.

Now let me talk about specific expense items. Research and development expenses were $3.6 million in the fourth quarter of 2018, down slightly versus the prior year period. For the full year 2018, R&D expenses were stable compared to the prior year at $13.9 million. This included $1.2 million of additional R&D expenses related to the citrus programs at Tecnidex. R&D spending reflected our resource allocation strategy that supports initiatives that drive continued diversification beyond apples.

Selling, general and administrative expenses, including Tecnidex were $15.6 million on a reported basis for the fourth quarter, down 11% versus prior year. Excluding Tecnidex, SG&A expenses were $14.7 million, down 14%. For the full year, selling, general and administrative expenses, including Tecnidex were $65.8 million, up 6% versus 2017. Excluding Tecnidex, SG&A expenses were $60.6 million, down 1% for the year. Going forward, we expect our cost optimization initiatives, which began to yield results in the fourth quarter 2018 to generate full year benefits in 2019.

Please turn to Slide 14. Net loss was $1.9 million in the fourth quarter versus net income of $23.4 million in the year ago period. The decrease was mainly driven by a $24 million onetime mark-to-market gain in 2017, related to the tax receivables agreement with Dow, as a result of 2017 U.S. tax reform. For the full year 2018, net loss was $30.2 million compared to net income of $23.6 million in 2017. As a reminder, last year, net income benefited from aforementioned TRA mark-to-market gain -- gains on foreign-exchange of $13 million and the $14 million of benefit as a result of a deferred tax valuation allowance reversal. The current year net loss was driven by the amortization of intangibles of approximately $46 million. Adjusted EBITDA was down $0.9 million to $24.4 million in the fourth quarter of 2018 versus the prior year period. For the full year 2018, adjusted EBITDA was essentially flat at $67 million. The full year number was driven by higher sales, offset by the impact of lower gross margin and the higher selling, general and administrative expenses related to the Tecnidex acquisition.

Turn to Slide 15. Cash provided by operations was $3 million for the full year 2018, compared to $35.4 million in the prior year period. The year-over-year change was driven by an increase in trade working capital of $17.9 million, timing of interest payments on our long-term debt. Year-over-year interest payments were higher by $15.8 million because we made 5 payments in 2018 compared to 3 payments in 2017, along with higher interest rates. We also saw higher cash tax payments of $3.7 million related to unrealized foreign currency gains in France in 2018, which will be nonrecurring. These were partially offset by a $4 million cash received from the settlement of an interest rate swap. Capital expenditures were $4.2 million for the full year 2018 compared to $7.7 million in the year ago period. Our asset light business model calls for limited capital expenditures, which generally range from 3% to 5% of sales annually. Beyond operating activities, we used $13.9 million to satisfy obligations to Dow, $6.1 million for repayment of long-term debt, $2.2 million for a contractual payment to complete our 75% purchase of Tecnidex and a $1.6 million related to the Verigo acquisition in 2018.

From a balance sheet perspective, cash as of December 31, 2018, was $34.9 million. Total debt was $412.9 million, with no meaningful maturities until July 2021. Our revolver was undrawn as of December 31, 2018. Subsequent to the quarter end, on January 31, 2019, we signed an agreement to extend our existing revolving credit facility from July 31, 2019, to December 31, 2020. And amended certain financial covenants, which increased our ability to access the revolver. We believe that $12.5 million amended facility is right-sized for our current need, and it contains more advantageous terms for us to utilize the facility. This new revolver will give us the financial flexibility to meet the company's working capital needs and is an important first step in our effort to optimize our capital structure.

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

Thank you, Graham. Please turn to Slide 16. As I mentioned at the outset, 2018 was a transitional year for the company. We have refocused the enterprise and sustainable growth, and I am confident that we now have the right leadership team in place to meet our goals and move forward to delivering solid results in 2019. During the year, we intend to deliver organic net sales growth with a focus on building a more diversified business and expect the cost optimization initiatives that were put in place in 2018 to continue to yield benefit throughout 2019. Additionally, we are working towards improving the health of our balance sheet to ensure that we can support long-term growth strategies that are necessary to meet our diversification initiatives.

And with that, operator, please open the line for questions. Thank you.

(Operator Instructions) Our first question comes from the line of Roger Duan from R.F. Lafferty.

Can you guys hear me?

Yes.

So a couple of questions. First of all, it looks like apple production in Europe is going to be up substantially this year according to USDA forecast. Can you guys confirm this? Are you guys seeing this as well and maybe give us a little bit more color on this?

Roger, Jordi here speaking. Yes, I think we mentioned that in the call that the European production, apple production was up. I think we mentioned specifically some countries in central Europe. So that definitely is confirmed.

Yes, yes, yes. Because they mentioned it was something like 40% increase year-over-year, so I just wanted to confirm the magnitude of the increase. Second of all, can you guys update us on the progress of FreshCloud? I noticed that you guys attended Oppenheimer's Blockchain Summit, maybe you talk a little bit about blockchain and how is it going to play in your FreshCloud offering?

Yes. So the FreshCloud, as we said before, is a journey as we build the platform across the whole supply chain and kind of measuring all the information on real time and to be able to make -- to help our customers make good decision. So I'm predicting shelf life of produce et cetera and prioritizing [products] over others depending on the freshness of the fruit that is being shipped. Yes, we did attend the blockchain conference, and I think that eventually, at a certain point, once we have a solid platform we could potentially turn this into a block chain opportunity.

All right, cool. Okay. The final question, are you guys looking to acquire the rest of the Tecnidex, seeing the growth provided by this segment?

We have a certain agreement with the previous owner and I don't think that's public. So in due time, I guess things can happen. But at this point in time, it is -- we refer back to the agreement that we signed, which is a private agreement.

Yes, we own -- Roger, it's Graham. So we own 75%. So we consolidate their operations into our financial statements.

(Operator Instructions) Our next question comes from the line of Gerry Sweeney from Roth Capital.

Just a question on Tecnidex. Obviously, it's been a good acquisition for you on a few fronts and I think you did touch upon it a little bit in your prepared comments. But can you go a little bit further into maybe some of the post-harvest citrus market opportunities you're seeing there? And then a follow-up to that would be -- maybe some synergies to expect from Tecnidex now that it's fully integrated into AgroFresh?

Right. So in the -- the growth opportunities that we see in citrus is obviously there are 2 areas. One is I think when we combine the name AgroFresh with the new offering in citrus, I think customers, generally speaking, because of our name are very receptive to that. Second, the Tecnidex, has also been playing for a while in certain countries that are going to be growth countries in the citrus business. I'm talking about the Middle East and places like Egypt, Turkey, these are places that the company made early bets. Morocco is a growing for market for citrus and the company had made an earlier bet, and with the addition of AgroFresh, we intend to speed up. We also have intention to grow in areas like South Africa and in Latin America, where the company had just started as well to try to introduce our products. So I think what we do with AgroFresh is 2 things. One is, I think, combining the name, because I think AgroFresh has a strong name and a good reputation in the market, combined with our resources as well as in those markets. Plus remember that Tecnidex is a privately-owned company that was trying to expand on their own pace. What we've done is basically we put them on a much higher speed to actually achieve these growth opportunities.

Got it. And then what about -- maybe discussing some of the synergies to expect on a go-forward basis, now that it's fully integrated, anything on that front?

Well, there is some synergies that we are working on to capture, that will be more related to improving our supply-chain. That's going to be a very important thing. Tecnidex has a strong base in Spain, which is actually in the Valencia area, it's a good area to actually try to be integrated in our supply-chain and how we move different products, not only from them, but from us as well in terms of doing some manufacturing in that facility, et cetera, which will be beneficial to us from a synergy standpoint. And obviously, we do see a lot of synergies in terms of the sales synergies, right? And I think we show that towards the end of the year especially, when we had a full impact, and we see that continuing as well. The acquisition was specially driven by our synergies so I want to make sure that's understood.

Our next question comes from the line of James Jang from Maxim Group.

So just a lot of questions have been answered. But as we move toward 2019. So what do you see as the greatest revenue opportunity. Do you see something happening in RipeLock where that could grow exponentially with the partnership to help the top line? Or do you think it's more of diversification and Tecnidex helping you to get into other sectors that you really don't have strong presence in?

Of course, we always would hope that things would take an exponential path. There is a possibility obviously, if all the stars line up in 1 year that we could actually get to that. However, I think that what you would see in '19 is the same trend that you've seen in '18 in terms of that our diversification strategies will go deeper into the growth of the company. I think that some of the hiccups that we've seen like Harvista will be put back on track this year. And so I think you will see then -- with the results you've seen this year will be improved next year in terms of growth based on the diversification initiatives. In terms of having something that could be exponential, we are very prudent here. I think we take 1 step at a time and all the steps have to be solid towards that sustainable growth.

Okay, that's fair. And with RipeLock and everything else, have you had any further discussions with larger grocers in the U.S.? Meaning has there been more of a pull factor in terms of your products?

I think I've mentioned in my previous remarks that I've disclosed that there were 10 -- there's more than that, but 10 large grocery trials right now, going on, I think I mentioned that, I disclosed it. So yes, I think that shows that we are in full activity in doing trials. Trials sometimes be a little bit long because they take a while to prepare, a while to roll out, and some time also to evaluate results and then there is the time, logical, for big companies to make decisions to do that. So again, we're on the right track here based on the pipeline and the number of trials that we have right now.

Okay, great. And one last one, I know you don't have real, exact numbers, but what do you think the market opportunity for cherries in Chile could be once that gets mature?

You are referring yourself right now, cherries from Chile, because we talk about blueberries in Chile. You're talking with Harvista right now.

No Tecnidex?

Oh, I'm sorry, I'm sorry.

You explained the new...

Yes, yes. I'm sorry, yes, yes. So I don't have the exact number how much would that be. But I would tell you that the opportunity in the Harvista -- let me put it this way. In cherries, Harvista, Chile has 35,000 acres of cherries. Fungicide itself, I haven't really assessed the total potential. What I can tell you is that it's not small. You're talking about an opportunity in the millions.

Our next question comes from the line of Daniel Jester from Citigroup Global Markets.

I wanted to ask you a bit on your patent strategy for SmartFresh. I guess my understanding that in 2019, you have more patents for the encapsulation technology rolling off in parts of Europe, parts of Asia Pacific and also Canada. So I was wondering if you can just comment about how you may adjust your business now that some more patents are rolling off.

Welcome back, Dan. It's good to have you here. So on your question about patents, I mean, I've been saying that for a while, the main patent expired in 2014. That was a use patent. And so we've been public to say that we have been facing competition ever since. The patent here you're actually addressing is the encapsulation patent and that is not even today our main application method. We have ProTabs, our main application method. But I would tell you this, in my experience, competition in this market happens when you have providers of service in the post-harvest market. And so the fact that a patent expires doesn't mean that we are going to have a multiplication of different competitors. It means that the competitors that we know and they are in the market and have a certain reputation to the service can have access to that. Those that can be a more serious competitors have had access to that product now in a different application now for 3 years. So although, obviously, nobody likes to have patents that expire, I don't think it's going to be that much of a dramatic correction as some of the people have been assessing.

And also, Dan -- this is Graham, it's also important to point out, that you mentioned, Canada and the East Coast United States. And as Jordi mentioned that we're already using mostly ProTabs in those regions instead of the powder or encapsulation formula that you referred to.

Got you. That's very helpful clarification. On RipeLock, in the slide deck, you talked about adding 700 stores in the U.S, which by my math added a couple of million dollars. So I'm just wondering what the [wholesale] opportunity is. If you have to add a very large number of stores every year just to get a few million of revenue. Is there a way to accelerate that? Is this sort of revenue per store low only because you're in the trial phases? Can you just talk about how you see that ramping up over the next few years?

Yes. It's a very good question. Yes, the average store revenue will increase based on 2 factors: number one, as you land bigger, stronger grocers that turn more produce per store and the stores are larger, obviously, you're going to have better sales per store. So again, as you improve or you get in larger grocers into your customer base. Second, yes, there is some incidents in terms of trials obviously. But generally speaking, trials, the only thing that they do actually is they should measure the same in real life, so I don't think that's the impact. The biggest impact really is adding more quality stores and quality grocers to your roster of customers.

Got it. And then, maybe one last one for Graham. Can you just talk a bit about philosophically how you think about the balance sheet? How rapidly do you feel like you need to delever it? Or there are other tools that you can use to give Jordi some more firepower to acquire some more companies?

Yes, sure, so the balance sheet capital structure in general, improvement has been on our radar screen. So as you see that we are very proactive thinking about and also working with our advisers, very actively evaluating the opportunities out there in the marketplace. So the way we see, over the next -- over time, certainly before the maturities, so we've got some time to put it into action. So first and foremost as we announced in January that is the -- to fix the existing revolver. So that's just a first step to make it more it user friendly but also expand the maturity by 1.5 years. So that certainly will give the company opportunity, financial flexibility to look at marketplace in terms of our overall capital structure and a debt refinancing opportunity later on. So to -- for overall deleveraging strategy for us -- first and foremost that we are focusing on our business, internal organic growth, as Jordi mentioned. We have several products that our baseline business is becoming more stable, and that we also have some growing brands that we are putting resources behind. So in addition, as you mentioned that we are very opportunistically looking at some suitable targets in the marketplace, ready to leverage our strong market position globally to tapping those -- tap into those opportunities. So overall, we are active and it's on our radar screen.

Ladies and gentlemen, at this time, I'm showing no further questions. I'd like to end the question-and-answer session and turn the conference call back over to management for any closing remarks.

Thank you very much to everybody that attended the call. Thank you for your keen interest and I want everybody to know, and rest assured that this management team and this company employee base is working very hard to deliver the results that everybody's expecting. So thank you very much, and we will speak again in next quarter.

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