Edited Transcript of MBII earnings conference call or presentation 13-Nov-18 9:30pm GMT

We had a very good quarter as we continued to build our company's infrastructure and execute upon our business plan. As the CEO and Founder of Marrone Bio Innovations, I continue to be confident about our growth opportunities and the future of our company.

We have seen progress in the following areas: First, from a financial standpoint, we are very pleased with the third quarter of 2018. We continue to make progress on our 3 target areas: growing our revenues, increasing our gross margin and keeping our costs in line. Let me touch on the highlights.

Revenues grew 29% to $5.4 million, a record third quarter revenue number for the company. Gross margins increased over 700 basis points to 48.3%, our highest quarterly gross margin in our history as a public company. Operating expenses decreased 19% to $6.8 million, while we experienced the lowest SG&A expense in 2 years. As for the balance sheet, the vast majority of our debt was converted to equity in the first quarter, and we ended the third quarter with over $22 million in cash, cash equivalents and restricted cash. Cash usage from operations this quarter decreased significantly to $1.9 million. With our stronger balance sheet, customers, distributors and growers can purchase our products with confidence.

Second, we continue to move our product pipeline ahead, commercializing innovative new products. As you know, we launched Haven Sun Protectant in March of 2017 and Stargus biofungicide last December. We launched Zelto bioinsecticide/nematicide, our first turf brand in January of 2018; and Amplitude biofungicide this spring. After the June launch of our CG brand of Regalia, Venerate and Grandevo into the cannabis and home garden market, sales of these brands started to contribute more meaningfully in this quarter. Cannabis remains a significant opportunity, especially since regulators are cracking down on illegal and unsafe pesticide use and Canada's national approval of recreational cannabis in October. And also, in the recent midterm elections, Michigan approved recreational cannabis, and Utah and Missouri approved medical uses. In the first few days of August, we submitted the registration of MBI-014, our breakthrough bioherbicide, to the EPA.

Third, U.S. and global field trials continue to show promising results. I'll share more about these shortly.

Fourth, we further expanded our commercial team, adding the Director of National Sales and Account Management and the Sales Manager of a Northern California territory. We continue to educate growers and key influencers about the benefits of biologicals in integrated programs. While biologicals are great for organic programs, they are still too often pigeonholed into organic only rather than integrated broadly into conventional programs. You will see more from us on this with our initiatives to hammer home that biologicals and chemicals are better together in integrated programs.

And finally, the International Biocontrol Manufacturers Association awarded MBI the renowned Bernard Blum Award for the innovations behind our Venerate, Majestene and MBI-014 products. Venerate was named Best New Biological Product at the prestigious Agrow Awards ceremony in London yesterday. These honors not only recognize the significance of what our products have to offer but also the recognition of the potential that biological technology in general has to offer the agricultural industry. These awards can be shared by all who are contributing to the advancement of biologicals.

While first half 2018 sales were affected by dry weather in California, lingering effects of the hurricanes in the southeast and negative rumors about the company, we continued our operational execution, which included several positive and noteworthy events as follows: We submitted the MBI-014 registration package to the EPA. Some of you are aware that MBI-014 is the company's first entry into the $20 billion weed control market. This is a significant milestone for MBI and the ag and food industries in general. The company continued to make progress on the art of use of 014 such as use rates, water volumes, adjuvants and combinations with other chemistry. We are very focused on moving this important new product into the marketplace.

We expanded MBI's international distribution network by signing a new distribution agreement with Hop Tri in Vietnam and Cambodia. Vietnam is an intensive pesticide market where growers are actively adopting biologicals to manage revenues -- residues for exported crops, presenting an exciting opportunity for us. We also just signed a distribution agreement with AMC/Agrimatco in Turkey, which is also a country with important vegetable markets for export.

We had a successful first commercial demo with an organic strawberry grower of MBI-601 biofumigant, which we have branded Ennoble. We continue to work on the manufacturing process in order to bring this product to conventional growers who have an acute need for a replacement for heavily restricted fumigants.

In 2017, one of our microbes was launched via our strategic partner, Albaugh, into the row crop seed treatment market. This 2018 season, the product was well received, where it is on track to achieve our expectation. Seed treatment is an important strategic growth area for MBI.

Data coming in from both the U.S. and international regions show outstanding results. I will now discuss some of the highlights.

California data were particularly strong. We continue to learn about the spectrum and performance of Stargus. For example, on walnut and pistachios, Stargus and Regalia programs control Botryosphaeria Blight, which is currently one of the most important emerging nut diseases due to resistance to the leading chemicals. On grapes, we have a 1, 2, 3 punch with Regalia, Stargus and Haven. Regalia continued to show stellar efficacy against powdery mildew, Stargus performed well for Rhizopus and Botrytis and Haven reduced sun damage. On almonds, both Venerate and Grandevo performed well against the leading pests, navel orange worm and peach twig borer. We successfully launched the navel orange worm grower program this year. On tomato and pepper, the Venerate program reduced damage due to the main caterpillar sucking and weevil pests. On cotton, a new focus for MBI, Venerate and Grandevo programs performed well against the toughest pests, lygus and whiteflies.

And now some highlights from the rest of the U.S. A study showed that Venerate can control the psyllid pest by one injection into pear trees. This is a very exciting result, and it's not the first time we saw efficacy this way. Tree injection is a viable approach and would be a consideration to help with the Asian citrus psyllid control on citrus trees. Venerate showed good control of wireworm on potatoes. Wireworm is a serious pest of many crops worldwide that needs better solutions.

We continue to focus on international expansion. Here are some highlights. The label for REGALIA MAXX in Mexico was expanded to bacterial diseases on tomatoes, peppers and potatoes; and in Brazil, to melons. Our distribution partner in Brazil has recently completed trials that support another significant label expansion in 2019, several fruit and vegetable crops, including mangoes and bananas. REGALIA MAXX demonstrated its plant health and yield enhancing effects on sugarcane in Panama, corn in Argentina and wheat and corn in Brazil. In 3 regions in China, Regalia performed as well as the chemical standard against the major diseases on strawberry, tomato, cucumber and grapes. In Europe, Majestene on tomato performed well against nematode pests. In 3 African countries, Venerate performed well against key caterpillar and sucking pests on cotton. Grandevo and Venerate performed well against mites on cannabis in Canada. These data will help fulfill Canada efficacy requirement for regulatory approval. One of the largest global fruit companies is testing our entire portfolio in banana and other fruit crops.

On the intellectual property front, we continue to bolster our portfolio. We received a patent for the Venerate microbes for use against corn rootworm. The claims also cover the use for important seed treatment market. We also received the patent for the genes of the bacterium Chromobacterium subtsugae in Grandevo. This patent also covers the use of Chromobacterium proteins expressed in engineered plants and uses for seed treatment.

In the third quarter of 2018, manufacturing and R&D continued to have an impact as follows: R&D margin improvement work and manufacturing efficiency efforts, combined with product mix, continued to increase gross margins, which grew 740 basis points to 48.3% in the third quarter when compared to the prior year. This quarter, we sent our improved Grandevo product, which was scaled again successfully at MMM, to field trials. Early field data looked promising. R&D continued to successfully amp up the nematicidal properties of Majestene via fermentation, which we believe will drive the cost of goods to a very competitive market position.