Edited Transcript of MBII earnings conference call or presentation 14-Mar-19 8:30pm GMT

Coming out of a difficult environment in 2017, 2018 was a year of stabilization, both commercially and financially. We did the heavy lifting to refinance the company and to rebuild our customer relations. We continue to invest in manufacturing improvements designed to enhance gross margins and strategic R&D projects that will drive future growth.

2018 set the stage for the growth we anticipate going forward with accelerating revenues, strong margins and adequate cash for our near-term needs.

If you would turn to Slide 3, I will first discuss the full year 2018 results. Revenues grew 17% to $21.2 million by leveraging our existing portfolio and selectively expanding into new crops and geographies. While this growth rate was lower than our 29%-plus gain in 2017, it was achieved while building a new sales team and strengthening relationships with key customers. However, please note that year-over-year revenues are not strictly an apples-to-apples comparison because of the adoption of ASC 606, the new revenue recognition standard.

We expect to build on the investments we made in our commercial function in 2019. With 5 active ingredients in hand to address the $60 billion agrichemical market, our rejuvenated sales team has a core portfolio that can deliver significant revenue growth in 2019 and beyond.

Gross margins expanded to 48.6% as we saw a very favorable mix on a higher percentage of sales of the Venerate product family, which includes seed treatments for row crops. This is particularly notable in the fourth quarter given the seasonality of our Venerate sales. One of the most significant levers we can pull to enhance gross margins is to continue to optimize our manufacturing operations through both process improvements and capacity utilization. We are in the design phase and an expansion of our Michigan manufacturing facility to support expanding sales in 2020 and beyond.

Operating expenses for the year were down modestly. Both SG&A and R&D on a fully basis were lower by single-digit percentages.

Net loss improved by $10.7 million to a loss of $20.7 million or $0.20 per share. We obviously benefited from the double-digit revenue growth and higher margins, but I would like to bring your attention to some items in the other income line.

Interest expense was reduced 68% as roughly 3 quarters of our historic debt was converted to equity. Cash payments of interest were reduced by $4.4 million or 73% as a result of the restructured debt payments that are pushed out until the end of 2022.

Net loss in 2018 was also affected by a revision to other income and expense associated with onetime change in the fair value of financial instruments and a gain and loss on extinguishment of debt. These onetime items will not be repeated in 2019.

As noted in our press release this afternoon, the change to the fair value of financial instruments and to both gain and loss on extinguishment of debt include a revision to the original accounting assessment of the company's February 2008 (sic) [2018] financing transactions.

The net effect is a decrease in other income and expense of 2.7 -- of $2.3 million and an increase in net loss by the same amount. This noncash charge change does not affect operating results.

Finally, as I mentioned previously, the heavy lifting was done in terms of refinancing the company, and cash flow is adequate for our near-term needs. Cash used in operations was $19.6 million, down from $21.1 million in 2017.

If you would please turn to Slide 4, you will see the fourth quarter trend as we expected and set the stage for a successful start to 2019. Revenues grew by 72% year-over-year, primarily because of higher sales of the Venerate family of products. Increased Venerate sales also raised gross margins to 50.5%, our highest margin quarter ever. As a reminder, our margins historically fluctuate quarter to quarter, and the Venerate family tends to have its strongest effect on margins in the second half of the year.

Operating expenses in the fourth quarter increased by $1.7 million, reflecting our strategy to ramp certain commercial and R&D programs to accelerate growth in 2019 and beyond.

A majority of the SG&A increase was a function of our revamped sales and marketing team when compared to the fourth quarter of 2017.

Operating loss in Q4 increased by $317,000 or 6%, benefiting from increased revenue and improved margins but offset by our investment in acceleration -- accelerating product development and strengthening commercial operations.

Cash used in operations in the quarter was $2.8 million, down from $6.6 million in Q4 of 2017. With the groundwork from 2018 complete, we have set the stage to leverage Marrone Bio's leadership in bio-based solutions with significant opportunities to accelerate our growth by leveraging our existing portfolio, expanding our market reach in crops and geographies, adding to our roster of distributors and strategically capitalizing on our R&D portfolio.

I would now like to turn the call over to Pam to provide you with commercial signposts that will signal our ability to substantially grow and expand the current commercial portfolio and take advantage of the near-term pipeline opportunities.

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Pamela G. Marrone, Marrone Bio Innovations, Inc. - Founder, CEO & Director [4]

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Thank you, Jim.

We, at Marrone Bio, have leveraged our industry-leading R&D pipeline to develop 5 families of proven products that have generated 5 years of revenue at a 19% compound annual growth rate with current blended margins greater than 45%.

Our bio-based natural products are flexible across farming practices and add significant value to our growers. Our products are uniquely positioned to address unmet market needs, serve as an alternative to an existing technology or be used in tandem with existing products to boost the effectiveness of the combined program. As Jim noted, we not only stabilized our commercial operations and financial footprint in 2018, we did so as we grew revenues and expanded gross margins.

Now we have more than 2 months into 2019, a pivotal year for us. We have put a solid foundation in place technically, commercially and financially to drive revenue growth this year and set the stage for growth in 2020 and beyond.

We are focused on 3 key deliverables in 2019: one, portfolio optimization; two, market expansion; and three, accelerated innovation.

If you would turn to Slide 5, let's look at an example of portfolio optimization. We are focused on optimizing our portfolio by addressing unmet market needs in an expanded set of crops and geographies with programs that are flexible across farm size and practices. As you may know, the discovery of Majestene as a treatment for nematodes came from our internal R&D program. Our team looked at the initial bacterial fermentation that led to Venerate, an insecticide, and found that it had properties that also make it an effective nematode treatment. This is a great example of how we maximize our R&D productivity and leverage invested capital through portfolio optimization.

The Venerate family of products is now the backbone of our soil- and seed-applied offerings, which we expect to be used on millions of acres of row crops in the United States this year, including corn, soybeans and cotton.

As we move forward, we are looking to expand our reach not only in the United States, but internationally with seed treatment and soil-applied products, [driving] our plans for Asia, Europe and South America and include expansion into specialty crops as well.

This geographic expansion includes work underway to expand our distribution network outside the United States. We are taking our portfolio optimization one step further this year with our investment in the super formulation of Majestene nematocide. We are developing an improved fermentation manufacturing process with lower cost that has the potential to significantly reduce the application rate of the product at the grower level. Therefore, optimization of the Majestene franchise is a key focus for us this year as soil and seed-applied products have the potential to be a significant percentage of the portfolio going forward. The market opportunity is growing as farmers look for new options in their production practices.

Our second opportunity is market expansion. Slide 6 highlights an example of how we will expand our market share through our offerings to the almond industry. Roughly 1.3 million bearing acres of almonds are grown globally with 80% grown here in California. It is a high-value crop, generating California growers $2.50 to $4 per pound, with an average yield of more than 2,000 pounds per acre.