Edited Transcript of MBII earnings conference call or presentation 9-May-19 8:30pm GMT

If you would turn to Slide 3. Let's take a deeper look at the first quarter. Revenues more than doubled to $8.7 million, 102% increase. These results mark not only a record first quarter, but a record for any quarter in our history. We saw a particular strength in 3 years. One, shipments of our venerate family of products continued to be strong. We saw improved sales, both in full year applications for vegetables and for soil and seed applied products for the spring-growing season for row crops in North America.

Two, we saw a substantial growth in the in-season placement of Grandevo for insecticides and mite control and specialty crops such as berries and leafy greens.

Three, we are establishing a solid position in the high-value market for trees, nuts and vines. To that point, Regalia's sales to treat fungal diseases and almonds were robust in the first quarter. The combination of higher sales, a favorable sales mix and better manufacturing efficiencies led to improved gross margins, which we expanded to 57.2% as compared with margins of 48.1% in the first quarter of 2018.

As you think about margins going forward, keep in mind that our margins fluctuate quarterly, largely depending on product mix. Our first and fourth quarters, they were row crops. The second and third quarter, specialty crops. We noted previously that we would be making targeted investments in our commercial programs and research and development in 2019. The 14% year-over-year increase in operating expenses reflected this plan funding, all chosen strategically to drive growth.

Net loss this quarter was $3.9 million or a loss of $0.04 per share compared with a net loss of $5.3 million or $0.07 per share in the first quarter of 2018. Please keep in mind that the quarterly comparison is skewed by a number of nonrecurring items in the first quarter of 2018. These onetime events related to our comprehensive financing and debt restructuring transactions. The net effect was a benefit of $1.2 million to other income in the first quarter of 2018.

Additionally, the diluted weighted average shares outstanding in the first quarter of 2019 were 110.7 million shares compared with 74.6 million shares in the first quarter of 2018. Cash used in operations for the first quarter was $7.7 million compared with $9.7 million in the first quarter of 2018. In comparison, the greater use of cash in the first quarter of 2018 reflected working capital reductions, following our comprehensive financing and debt restructuring transactions. In the first quarter of this year, cash used in operations grew sequentially from the fourth quarter of 2018 as a result of accounts receivable related to increased sales.

As we move further into the second quarter and the first half, we expect to continue our momentum by leveraging our existing portfolio and expanding our market reach. The seasonality of our product sales will shift to specialty crops as distributors and growers start applying fungicides and insecticides. Therefore, we expect to see a change in product mix as we complete the second quarter, which is somewhat smooth than first half results.

I would now like to turn the call over to Pam for a more in-depth look at our efforts to make our portfolio a key part of every grower's tools for improving productivity.

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

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Thank you, Jim. I would reiterate Jim's comments that we have put a solid foundation in place technically, commercially and financially to drive revenue growth. Our first quarter results carried forward the momentum from the second half of last year and there's a solid start to, what we believe, can be a transformative year for Marrone Bio. As we discussed during our last earnings call, we are focused on 3 key deliverables in 2019: one, portfolio optimization; two, market expansion; and three, accelerated innovation.

I'd like to focus on the revenue side of the picture this quarter to give you a sense of how our portfolio meshes with grower needs in our key markets.

To start, if you would turn to Slide 4. One of our strengths is the flexibility of our bio-based products to be used across all types of food and feed production. In our early days, our products were being used predominantly in specialty crops. As we move forward, we expect our crop mix to be more diversified with roughly 1/3 fruits and vegetables, 1/3 trees, nuts and vines, 1/3 row crops and the small percentage in greenhouse and covered crops. This will be a significant shift in the product mix for us and speaks to the value we've been able to demonstrate whether you are producing leafy greens in Arizona, grapes in California or soybeans in Illinois. Much of what will enable this evolution of our sales mix is our emphasis on offering growers the and, not the or. We strongly advocated the use of our products in combination with complementary traditional agricultural solutions or with other compatible biocontrol or bio-stimulant offering. In fact, more than 80% of our product offerings are used in combination with conventional agricultural solutions. The grower doesn't have to choose one solution over another when he works with us. The grower benefits from our product profile, which offers less environmental impact, lower residues, better resistance management and improved plant health and performance. Our open architecture approach to agriculture coupled with proven performance provides the grower with a greater choice and thus enhances our revenue-generating capabilities.

If you would please turn to Slide 5. I'd like to highlight our demonstration trials, combining Regalia Rx for corn production with current fungicide treatments for plant health. Regalia Rx is a powerful bio-based fungicide in its own right and is applied in this case as a foliar spray. When added to the grower's existing fungicide program, the results are impressive, a 77% win rate, a yield increase of 4.2 bushels per acre and a 3 to 1 return on investment for the grower. We have tested Regalia Rx in other row crops, including soybeans, rice, wheat and alfalfa and have seen similar returns on the grower's investment. We are actively demonstrating this approach this quarter in soybeans and corn with partners and distributors. This fungicide combination has the potential to expand our footprint in global row crops with a mid-season foliar product that complements our soil and seed-applied offerings.

Combinations like this reach across the breadth of our portfolio. Last quarter, we highlighted our success with Venerate in conjunction with other insecticides to treat navel orange worm in almonds. Growers will see the results of this season's treatments and harvest time. In the second quarter, after corn, cotton and soybean are planted, we will see the early results of Venerate or Grandevo with other seed treatments for added nematode and insect control.

If you would refer to Slide 6. I'd like to emphasize the importance of our mix of target crops. This chart overlays the key growing cycles for our key market categories. We show you northern hemisphere versus southern hemisphere, which is important to understand as we work to expand our international presence. Obviously, there is some generalities here when you address broad categories of crops, but the key takeaway remains the same. This diversity of mix works to our advantages across seasons, reducing our dependence on the success of any one crop and helping to mitigate the inevitable vagaries of agriculture. As Jim mentioned, you'll see some mix effect as we move forward through the first half of the year and toward a greater use of our portfolio and full year applications for specialty crops in the northern hemisphere. As we grow globally, we'll benefit from counter-season production in the southern hemisphere.

If you would turn to Slide 7. As we discussed at year-end, we are highly focused in 2019 on delivering revenue growth through portfolio optimization, market expansion and accelerated innovation. As we broaden our customer outreach and distribution network, we expand our ability to sell our products for multiple uses in powerful combinations in any given crop. The first quarter was early proof of the power of this approach. We will continue to seek further opportunities to do so, particularly as we work to expand our footprint across crops, across geographies and in combination with other ag solutions. We are entering a transformative period for Marrone Bio, one of which the benefits of our technologies are rapidly moving into the hands of growers in ways that mesh positively with their growing systems, giving them greater choice and better return on their investments.