Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements include all adjustments that are necessary for a fair presentation of the Company's condensed consolidated results of operations, financial condition and cash flows for the periods shown, including normal, recurring accruals and other items. The condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. For additional information, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2018.

Adoption of Highly Inflationary Accounting in Argentina

GAAP requires the use of highly inflationary accounting for countries whose cumulative three-year inflation rate exceeds 100 percent. The Company has been closely monitoring the inflation data and currency volatility in Argentina, where there are multiple data sources for measuring and reporting inflation. In the second quarter of 2018, the Argentine peso rapidly devalued relative to the U.S. dollar, which along with increased inflation, indicated that the three-year cumulative inflation rate in that country exceeded 100 percent as of June 30, 2018. As a result, the Company has elected to adopt highly inflationary accounting as of July 1, 2018 for its subsidiary in Argentina. Under highly inflationary accounting, the functional currency of the Company's subsidiary in Argentina became the U.S. dollar, and its income statement and balance sheet will be measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on Argentine peso-denominated monetary assets and liabilities will be reflected in earnings. As of September 30, 2019, the Company’s subsidiary in Argentina had a net asset position of $6.7 million. Net sales attributable to Argentina were approximately 6% and 5% of the Company’s consolidated net sales for the nine months ended September 30, 2019 and 2018, respectively.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographic region, product and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Revenues for the three months ended September 30, 2019


(in thousands)
Region	North America (1)		EMEA (2)		Latin America (3)		Asia Pacific (4)		Total Revenue
Product
1-MCP based	$	19,726	$	22,377	$	1,680	$	1,605	$	45,388
Fungicides, waxes, coatings, sanitizers	—		2,857		198		—		3,055
Other*	218		86		108		117		529
	$	19,944	$	25,320	$	1,986	$	1,722	$	48,972

Pattern of Revenue Recognition
Products transferred at a point in time	$	19,802	$	25,238	$	1,877	$	1,605	$	48,522
Services transferred over time	142		82		109		117		450
	$	19,944	$	25,320	$	1,986	$	1,722	$	48,972

Revenues for the three months ended September 30, 2018


(in thousands)
Region	North America (1)		EMEA (2)		Latin America (3)		Asia Pacific (4)		Total Revenue
Product
1-MCP based	$	26,029	$	34,284	$	779	$	2,387	$	63,479
Fungicides, waxes, coatings, sanitizers	270		4,047		—		—		4,317
Other*	614		134		154		—		902
	$	26,913	$	38,465	$	933	$	2,387	$	68,698

Pattern of Revenue Recognition
Products transferred at a point in time	$	26,774	$	38,342	$	907	$	2,176	$	68,199
Services transferred over time	139		123		26		211		499
	$	26,913	$	38,465	$	933	$	2,387	$	68,698

Revenues for the nine months ended September 30, 2019


(in thousands)
Region	North America (1)		EMEA (2)		Latin America (3)		Asia Pacific (4)		Total Revenue
Product
1-MCP based	$	23,084	$	31,965	$	27,503	$	11,287	$	93,839
Fungicides, waxes, coatings, sanitizers	—		11,365		1,458		—		12,823
Other*	954		927		381		171		2,433
	$	24,038	$	44,257	$	29,342	$	11,458	$	109,095

Pattern of Revenue Recognition
Products transferred at a point in time	$	23,380	$	43,374	$	29,159	$	11,309	$	107,222
Services transferred over time	658		883		183		149		1,873
	$	24,038	$	44,257	$	29,342	$	11,458	$	109,095

Revenues for the nine months ended September 30, 2018


(in thousands)
Region	North America (1)		EMEA (2)		Latin America (3)		Asia Pacific (4)		Total Revenue
Product
1-MCP based	$	28,378	$	43,508	$	26,185	$	12,228	$	110,299
Fungicides, waxes, coatings, biocides	270		12,981		—		—		13,251
Other*	1,236		349		335		—		1,920
	$	29,884	$	56,838	$	26,520	$	12,228	$	125,470

Pattern of Revenue Recognition
Products and equipment transferred at a point in time	$	29,701	$	56,658	$	26,448	$	11,784	$	124,591
Services transferred over time	183		180		72		444		879
	$	29,884	$	56,838	$	26,520	$	12,228	$	125,470

*Other includes FreshCloud, technical services and sales-type leases related to Tecnidex.

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(1) North America includes the United States and Canada.

(2) EMEA includes Europe, the Middle East, and Africa.

(3) Latin America includes Argentina, Brazil, Chile, Costa Rica, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Peru, and Uruguay.

(4) Asia Pacific includes Australia, China, India, Japan, New Zealand, the Philippines, South Korea, Taiwan, and Thailand.

Contract Assets and Liabilities

ASC 606 requires an entity to present a revenue contract as a contract asset when the entity performs its obligations under the contract by transferring goods or services to a customer before the customer pays consideration or before payment is due. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. The following table presents changes in the Company’s contract assets and liabilities during the nine months ended September 30, 2019 and the twelve months ended December 31, 2018:


(in thousands)	Balance at January 1, 2019		Additions		Deductions		Balance at, September 30, 2019
Contract assets:
Unbilled revenue	$	1,956	$	8,958	$	(6,911)	$	4,003
Contract liabilities:
Deferred revenue	$	1,280	$	2,810	$	(2,761)	$	1,329


(in thousands)	Balance at January 1, 2018		Additions		Deductions		Balance at, December 31, 2018
Contract assets:
Unbilled revenue	$	739	$	7,117	$	(5,900)	$	1,956
Contract liabilities:
Deferred revenue	$	100	$	4,428	$	(3,248)	$	1,280

The Company recognizes contract assets in the form of unbilled revenue in instances where services are performed by the Company but not billed by period end. The Company recognizes contract liabilities in the form of deferred revenue in instances where a customer pays in advance for future services to be performed by the Company. The Company generally receives payments from its customers based on standard terms and conditions. No significant changes or impairment losses occurred to contract balances during the three months ended September 30, 2019. Amounts reclassified from unbilled revenue to accounts receivable for the nine months ended September 30, 2019 and for the year ended December 31, 2018 were $6.9 million and $5.9 million, respectively. Amounts reclassified from deferred revenue to revenue for the nine months ended September 30, 2019 and the year ended December 31, 2018 were $2.8 million and $3.2 million, respectively.

Recently Issued Accounting Standards and Pronouncements

In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12 Targeted Improvements to Accounting for Hedging Activities. This update makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. This update will be effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted upon its issuance. The Company adopted the new ASU as of January 1, 2019 and it did not have a material impact on the Company's financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation, Scope of Modification Accounting. ASU 2017-09 addresses the changes to the terms and conditions of share-based awards. ASU 2017-09 is effective for periods beginning after December 15, 2017 and interim periods therein on a modified retrospective basis. The Company adopted the new ASU as of January 1, 2018, and it did not have a material impact on the financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations, Clarifying the Definition of a Business. The new accounting guidance clarifies the definition of a business and provides additional guidance to assist entities with evaluating whether transactions should be accounted for as asset acquisitions (or asset disposals) or business combinations (or disposals of a business). Under the new guidance, an entity first determines whether substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the transaction should be accounted for as an asset acquisition as opposed to a business combination. This distinction is important because the accounting for an asset acquisition significantly differs from the accounting for a business combination. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. During the second quarter of 2018, the Company adopted this standard in connection with the acquisition of Verigo (refer to Note 3).

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, which simplifies the test for goodwill impairment. The guidance is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted for interim or annual goodwill impairments tests after January 1, 2017. This standard will impact future financial statements when adopted if the Company has impairment to its goodwill.

In February 2016, the FASB issued ASU 2016-02, Leases. The main objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including

interim periods within those fiscal years. Effective for the quarter ended March 31, 2019, the Company adopted the guidance for leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also elected to apply practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption. The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $7.3 million as part of other assets and a lease liability of $7.3 million as part of other current liabilities and other long-term liabilities in the consolidated balance sheet as of January 1, 2019. This represents non-cash activity as of the adoption date. The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.