Marrone Bio Innovations, Inc. (MBII) Q4 2021 Results Conference Call March 28, 2022 4:30 PM ET
Linda Moore - Chief Legal Officer
Kevin Helash - Chief Executive Officer
LaDon Johnson - Interim CFO
Matti Tiainen - Senior Vice President of International Sales
Kamal El Mernissi - Senior Director of Product & Marketing
Conference Call Participants
Bobby Burleson - Canaccord
Dmitry Silversteyn - Water Tower Research
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Marrone Bio Innovations Conference Call Fourth Quarter and Full Year 2021 Earnings Conference. At this time, all participants are in a listen-only mode.
After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference maybe recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker, Linda Moore, General Counsel. Please go ahead.
Good afternoon, everyone, and thank you for joining our call. Welcome to the 2021 fourth quarter and full year earnings conference call for Marrone Bio Innovations. Our presenters today are CEO, Kevin Helash; and Interim CFO, LaDon Johnson. They will be joined by Matti Tiainen, our Senior Vice President of International Sales and Kamal El Mernissi, Senior Director of Product and Marketing for the Q&A section at the end of the call.
If you would please refer to Slide 2, I would like to remind you that this conference call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding management’s future expectations, plans, projections, forecasts and prospects.
Certain material assumptions were applied in reaching these conclusions and making these statements. Therefore, actual results could differ materially from those contained in our forward-looking information. Important factors that could cause differences are contained in the reports filed by the company with the Securities and Exchange Commission, including under the heading Risk Factors, MD&A and elsewhere in the company’s Annual Report, quarterly reports and other filings.
The company expressly disclaims any obligation to revise or update any guidance or other forward-looking statements to reflect events or circumstances that may arise after the date of this call. After our remarks, we will hold a question-and-answer session.
I will now turn the call over to our CEO, Kevin Helash. Kevin?
Thank you, Linda, and thanks to everyone joining us on the call today. We'd like to cover several items with you today. I'll start with a high level review of 2021 and an outlook for 2022 while LaDon will go into more specifics on Q4 and the 2021 financial results. I'll wrap the call up with a few comments on our definitive agreement to combine with Bio series, which we announced on March 16th.
If you would turn to Slide 3, our strong end to the 2021 fiscal year contributed to our 15.5% avenue revenue growth, in line with our prior forecast. Our fourth quarter results were driven by solid demand from our customers who are looking to secure supplies and lock in prices in the face of tight inventories and rising costs throughout the agricultural supply chain.
Gross margins exceeded our expectations and we're extremely pleased to report our first full year with margins above 60%. These results speak to the improvements in our product mix and to manufacturing efficiencies at our Michigan plant, as well as to the capability of the entire team to manage your business in a dynamic environment.
We made excellent progress towards our goal of attaining adjusted EBITDA breakeven this year, with a loss of 8.7 million in 2021 as compared to a loss of 11 million in 2020. LaDon will speak in more detail about our operating expenses. But I would note that in 2020, this line item benefited by 1.4 million from the forgiveness of the PPP loan. If we take this into account, adjusted EBITDA improved by more than 30% year-over-year. As evidenced by results, the combination of top-line growth and discipline spending continue to move the needle in the right direction.
With the first quarter nearly in hand, we have a good line of sight on how we expect the first half of 2022 to unfold. We anticipate revenue growth for the first half will significantly outpace our performance in the first half of 2021. Furthermore, as is customary for MBI, we expect sales in the second quarter will exceed those in the first quarter. Higher demand for our insecticides and nematicides and row crops in the first quarter is expected to offset headwinds from continuing drought conditions in the Western United States, and we were particularly encouraged by the second quarter forecast for our products in Latin America, through our partnership with Rizobacter.
Turning to our supply, we have put contingency plans in place given the uncertainties surrounding the heartbreaking situation in Ukraine. We manufacture a number of our Pro Farm products through a minority ownership and a third-party facility in Russia. We have activated plans to move approximately two years supply of seed treatments, and one year supply of foliar product out of this facility by the end of the second quarter. Obviously, the agricultural outlook in Ukraine is highly fluid and difficult to predict, and we will continue to monitor the situation closely.
In summary, we ended 2021 and are starting 2022 with a number of positive developments that set the stage for future growth. We recently announced two significant distribution agreements with Corteva, one for foliar products to support plants health, and one related to the further global expansion of our Seed Treatment collaboration. Both are major commitments by a leading player in agriculture to the value of our biological solutions.
Of course, our most notable announcement in the last few weeks has been our entry into a definitive merger agreement with Bioceres. We believe our proposed combination will provide the commercial diversity and financial wherewithal to allow MBI to deliver on its full growth potential. And I'll cover the merger in more detail in my closing remarks.
Let me turn the call to LaDon now to discuss a few more financial items of note. As we announced previously, LaDon joined us in February as interim CFO, and he has immediately made positive, meaningful contributions to the company. LaDon?
Thanks so much, Kevin. If you would turn to Slide 4, we're again highlighting the key metrics for the fourth quarter and the full year in 2021. As Kevin mentioned, crop protection products were a key factor in the 40% increase in Q4 revenues, although that had a modest dampening effect on gross margins.
However, this was still the company's 13th consecutive quarter with gross margins above 50%. For the full year the company delivered solid revenue growth of 15.5%. Gross profit gains of 19% drove the 21% improvement in adjusted EBITDA in 2021, which followed a more than 30% improvement in fiscal year 2020. In the last two years, the company has cut its adjusted EBITDA loss almost in half. Operating expenses for the full year were in line with the company's commitment to hold costs at 2020 levels plus inflation. I'd like to dive into the OpEx line items a bit further, if you would turn to Slide 5.
On a comprehensive basis, the full year 2020 benefited by 1.4 million from the forgiveness of the PPP. If you exclude that loan, operating expenses increased by only 2.9%, well below the 7% rate of inflation for 2021. This would be true even though we absorbed some noncurrent, reoccurring expenses in the fourth quarter.
These included consulting costs, particularly those associated with the Bioceres transaction, and an upfront payment in support of our herbicide research. Obviously, we'll continue to incur expenses related to the merger until it closes but we'll be able to highlight those for you going forward so that you can continue to see our underlying cost structure.
Finally, if you refer to Slide 6, I'd like to comment on our operating cash and cash flow. Our ending cash position for 2021 was 19.6 million, a 3.8 million or 24% improvement from the end of 2020. This increase was a function of 6 million improvements to our cash used in the operations, additional net borrowing of approximately 5.5 million, and approximately 9.7 million in cash from the exercise of expired -- of warrants expiring in 2021.
Finally, I'm delighted to be able to work with Kevin and the team and successfully complete the transaction with Bioceres. The finance organization will be key to the integration process in addition to keeping a steady hand on the day to day work that supports our ongoing operations. I've worked with a number of companies and have been impressed by the quality of our finance team and its work. While, this is an interim position for me, I hope to be able to contribute significantly to the company's future success.
With that, let me turn it back to Kevin.
Thank you, LaDon. It's great to have you with us. If you would refer to Slide 7, I'd like to speak further to the combination of Bioceres and Marrone Bio. When I joined Marrone Bio, a year and a half ago, I had a direct message for people and our shareholders. We had a unique opportunity to break out of a crowded and fragmented market and emerge as a clear leader in the biological space.
Breadth and depth mattered, and channel access was as critical as technological prowess. My assessment then as it is now, was that we had both but needed more. We wanted to accelerate our commercial velocity by growing our base business, expanding into new markets and leveraging our pipeline. We were upfront that strategic, accretive acquisitions were definitely part of the mix as we forward surpass the profitability. Underscoring all of this was an unrelenting focus on driving operational and financial excellence with a keen eye on income and cash flow. Our announcement just over a week ago of the definitive agreement to combine with Bioceres fulfills those commitments.
Our partnership with Rizobacter which started in September of 2020 allowed us to create a relationship that gave us comfort to opening the door to this agreement with Bio series. Our combination has the potential to accelerate the company's global reach, broaden our product offerings and expand our R&D programs. It does so with the financial flexibility that allows for strategic funding of accretive growth initiatives and support for a robust global commercial team.
I personally believe this is the right strategic move for both companies and I am deeply committed to ensuring the success of the new organization. With that said, we must stay focused on the normal course of business, and our entire team remains committed to delivering greater growth, providing our customers and our growers the best products possible to support a sustainable future in agriculture.
I'd like to turn the call over to the operator now for your questions. Operator?
[Operator Instructions] At this time, I am showing no questions in queue. I will turn the call back to Mr. Kevin Helash.
All right. Thank you, operator. Go ahead, sorry.
One just queued up coming from the line of Bobby Burleson with Canaccord.
So just maybe congratulations on the transaction, but maybe we can just do a little review on the OpEx. You guys have done a great job getting the gross margins up through mix and it looks like going forward, it's a nice robust gross margin and you had some ability to deliver some operating leverage. Maybe just refresh us on, historically, why the operating expenses ran so hot and kind of ex any kind of Bioceres integration, just what the sources maybe of savings were that you were anticipating prior to this agreement?
Right. So well, Bobby, in terms of OpEx in the quarter, we had quite a few onetime items that hit our financials. And I'd say one of the largest definitely was costs related to the Bioceres transaction.
With that, I'll turn it over to LaDon to give you some more color on what all made up our OpEx for Q4.
Yes. Kevin, this is LaDon here. Good question, Bobby. There were a number of one-off accrued items at the end of 2020 that were unneeded and therefore, released at the end of 2020, which distorted the 2020 OpEx expenses downward. As I said in the conversation when we adjust for some of those things, we hold our -- even our Q4 operating expenses were held at inflation or less. And we also had the onetime herbicide program cost in Q4 of 2021. So those are the primary drivers of the change year-over-year in Q4.
Okay. And is there -- was there a structural or managerial kind of focus prior to you coming on board, Kevin, that caused maybe higher OpEx that you had wanted to remedy? Like how do we think of the cultural change that you brought about in terms of funding R&D, that kind of thing?
Yes, Bobby, it's an interesting question. So the way I think about it is the company has an extremely solid base. It had and has an extremely solid base in terms of our platform. And our current level of OpEx, in my view, and I'd say it's shared by my leadership team, we believe is sufficient to drive our growth initiatives.
So you kind of get to a point, right, where this is a level that we can fuel and fund our R&D work, our pipeline. We can do our product development work. We can run our plants safely and continue to invest in them. So it's more a matter, I'd say, Bobby, of building into or growing into our platform and getting ourselves to scale rather than being in a position where we kind of substantially increase our OpEx to drive our growth.
I was very fortunate when I came here that, that level of infrastructure and the financial support for that infrastructure was already here. So basically, what we're doing now is running the ship as it is, we're growing into our footprint and growing into our size. And our OpEx, as we see it, moving forward is basically running at the current rate we're at now, plus inflation for the base business. And I would say, I would put aside any strategic acquisitions or investments outside of that. But for the base business, we feel like we're in good shape right now.
Our next question coming from Dmitry Silversteyn with Water Tower Research.
Congratulations on a strong finish to the year and the deal with Bioceres. Quick question. You sounded pretty optimistic on your revenue expectations for the first half of '22, but not bad. But I think I also heard that there may have been a little bit more active customer buying in the fourth quarter that benefited the end of '21 ahead of expected price increases. So I guess my question is, -- what is it that gives you the confidence or which areas do you expect the growth to materialize to give you the faster growth than you had last year despite the fact that you may have had a little bit of prebuying taking place in the fourth quarter.
Dmitry, I'm lucky to have and fortunate to have Matti and Kamal with me, so I will pass it over to them in a few seconds for their commentary. But -- when we think about the business in agriculture, it's a full year cycle. So the fourth quarter, the first quarter -- fourth quarter of the year, customers make buying decisions depending on how they foresee price increases, how they see supply, how they see their forecast -- or sorry, their spring season breaking. So between the fourth quarter of the year, the first quarter and the second quarter, it's all 1 big cycle from our standpoint.
So as I mentioned, we did see strong demand from our customers in the fourth quarter, wanting to make sure that they secured supply and wanted to get product positioned ahead of anticipated price increases for this year. As we look into 2022, we have a good number of tailwinds with this. We've got strong commodity prices. We've got robust demand for all crop inputs from our side. We're seeing strong demand for our insecticide platform, our nematicides and certainly for our seed treatments.
And now we're very fortunate again that we are quite diversified and moving away from being so heavily dependent on the U.S. market. We've got an excellent business in Europe and international underneath Matti. And then Kamal, as we look into our North American business, we have a broad footprint and certainly a bigger and expanding Seed Treatment portfolio.
So with all those things coming together, we think that we're very well positioned to take advantage of the market going into 2022.
With that, Matti, I'll pass it over to you and then Kamal after that for any additional comments you'd like to make.
Yes. Thanks, Kevin. And Dmitry, thank you for the good question. So I think Kevin said most of it and I echo everything what Kevin just mentioned. There is 1 highlight I would like to make is the contracts that we've signed recently, as an example with Corteva, which again shows that we're expanding our existing business with our current partners. Corteva, of course, being a major partner for us, but also us having a significant relationship in South America with companies such as Rizobacter and some others.
That means that we're doing the right things and having a diversified portfolio. I think what we're seeing, especially internationally right now is that our plant health division is, first of all, it's going to be in season and seed treatment is starting to kick in, in the first half of '22, and that's really showing that we're doing the right things and expanding that business with our existing partners while we're forging new ones.
So it is a combination of having an extremely well diversified and balanced portfolio, but also doing the right thing with our partners in order to expand that business.
And with that, I'll pass over to Kamal. Kamal, you have commentary on the U.S. business.
Kamal El Mernissi
Yes. Thank you, Matti, and thank you again for the question, Dmitry. So just wanted to add 1 more aspect to Matti and Kevin. It's really about the -- our initiative BioUnite, which is about well combining biologicals with traditional chemistry. I think we've had very good success with it. And I think in the first half of the year, we'll see growers adopting more and more our BioUnite strategy.
I want to say that we are continuing to focus on row crop. So definitely some of our plant health solutions that we launched recently like Pacesetter and UBP 110 would get a lot more traction. And with that, of course, we expect a strong first half of the year.
The other aspect, probably that Matti also talked about is seed treatment where we are focusing a lot on seed treatment and expanding our footprint health here in the Midwest.
[Operator Instructions] And I'm showing no further questions at this time. I'll turn it back to Mr. Kevin Helash for any closing remarks.
Yes. Thank you. I would just quickly close by noting we have not entered into the merger agreement with Bioceres lately. We spend a great deal of time and resources to ensure we are achieving a positive outcome for our shareholders, maintaining an industry-leading commercial operation for our customers and building a promising future for our people. We intend to be a valuable partner in the long-term success of what will be a breakthrough position in sustainable agriculture around the world. Thank you again, and we look forward to speaking to you later -- speaking with you later this year. Thanks all.
Ladies and gentlemen, that will conclude our conference for today. Thank you for your participation. You may now disconnect.