Marrone Bio Innovations, Inc. (MBII) CEO Kevin Helash on Q1 2022 Results - Earnings Call Transcript

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Marrone Bio Innovations, Inc. (MBII) Q1 2022 Earnings Conference Call May 11, 2022 4:30 PM ET

Company Participants

Kevin Helash – Chief Executive Officer

Linda Moore – Chief Legal Officer

LaDon Johnson – Interim Chief Financial Officer

Matti Tiainen – Senior Vice President International Sales

Kamal El Mernissi – Senior Director of Product & Marketing

Conference Call Participants

Dmitry Silversteyn – Water Tower Research


Good afternoon ladies and gentlemen, and welcome to the First Quarter 2022 Earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Ms. Linda Moore. Ma'am.

Linda Moore

Good afternoon everyone, and thank you for joining our call. Welcome to the 2022 first quarter earnings conference call for Marrone Bio Innovations. Our presenters today are CEO Kevin Helash, and Interim CFO LaDon Johnson. And they are joined by Matti Tiainen, Senior Vice President for International Sales, and Kamal El Mernissi, Senior Director of Product Marketing for the Q&A a session 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 reports, 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.

Kevin Helash

Thank you Linda, and thanks to everyone joining us today. l would be remiss if I did not start by expressing our sympathies to all those impacted by the conflict in the Ukraine. Many of us in the MBI family have personal ties to the country. Our thoughts and prayers are with them, and we hope for a quick end to this humanitarian crisis. I'm proud to say, reports indicate that even under the worst of all circumstances, farmers in Ukraine have been able to plant over 30% of their spring crops according to the country's grain traders union. To illustrate the tenacity this has taken, a recent Reuters report spoke of growers wearing body armor as they go to work in the fields. While we anticipate some effect on our full-year revenues in Europe due to the Ukraine conflict, we work diligently to make up a difference in other parts of the business.

Turning specifically to the first quarter, I'd like to speak broadly to the macro conditions we faced, and provide additional color on our outlook for the second quarter and first half of 2022. LaDon will then go into more details on the numbers. To start, please turn to Slide 3. Our first quarter results with solid revenues in the row crop markets, and difficult weather conditions for specialty craft growers in the Western U.S. underscore the importance of our strategy to diversify our product mix and our geographic reach, and while our merger agreement with Bioceres is key to the expansion of our business across the segments. We're very pleased with our North American seed treatment business, which expanded in the first quarter thanks to the strong demand for our Bioinsecticide, Bionematicide product.

As you know, in the fourth quarter of last year our North American customers stocked up in anticipation of a normal season. For our partners serving the row-crop markets, we saw an increase in sales in the first quarter as these products began to move to the channel and be placed on farm. The dynamic was different for specialty crops. For the second year in a row in the Western U.S. severe drought conditions curtail early season use of our fungicides. This is not an issue of performance, our products continue to have strong support from the market. The challenge is that the dry conditions negate the overall demand for fungicides, which in turn lowers the need for our customers to restock. Just to give you a feel for the severity of the circumstances growers faced, the U.S. reported that March precipitation in California was less than half an inch versus more than two inches in an average year.

Additionally, Northern California and the Pacific Northwest incurred frost damage in the fruit and nut trees. The impact of the frost and its effect on orders going forward is still being determined. On a positive note, as we indicated in our fourth-quarter call, we continue to foresee a sharp rebound and revenues in the second quarter, putting us on track for low to mid-teens growth for the first half of the year, which would represent a material increase over our revenue growth in the first half of 2021. Our forecast is supported by healthy order book with strong demand from some of our most significant repeat customers. A key component of our growth in the first half will be sales of full-year and seed treatments for major row crops in the United States, Europe, and Latin America.

In the U.S. our seed treatments are primarily used on soybeans. And the latest USDA planting intentions report indicates the potential for a record 91 million acres of soybeans, up 4% from acres planted in 2021. This goes well for the use of our products and sales going into the 2023 season. To a certain degree, the anticipated increase in U.S. soybean planting it's the function of the drove in Brazil, Argentina, and Paraguay, which is expected to reduce yields. Despite those conditions, the outlook for our business in Latin America is very healthy going into the 2022 growing season. Let me discuss previously, we have made decisions regarding our manufacturing facility and our commercial activity in Russia, which are fully aligned with the broader international community in condemning the current actions by Russia and Ukraine. Our Pro Farm team has built a healthy level of inventory within Europe with line of seed treatments and full-year products.

By the end of this month, we expect to have enough seed treatment materials in Europe to supply our customers for the 2023 and 2024 planting seasons. Regarding our full-year products, we plan to have enough inventory by the end of May to cover at least one year of expected demand. We're also moving quickly with our plans to geographically expand the production capabilities of our Pro Farm portfolio. We believe that our current scope of options for manufacturing locations combined with robust inventory will carry us through any supply chain constraints that are related to Russia going forward. The diversification of our production outside of Russia is a strategy we have been working on due to commercial reasons for some time, but that total line has been dramatically accelerated in today's environment.

All told while the start to the year was challenging in the Western U.S. the outlook for the first half and remainder of 2022 -- 2022 remains promising. The continued diversification of our portfolio from a prop and geographic perspective remains critical to our long-term success. Of course, a proposed merger of Bio series will play a key role in meeting that objective. The necessary steps towards completing the merger are well underway and as previously reported, we expect to close the transaction in the third quarter of 2022. I'd like to turn the call over to LaDon now to go into the financials beyond revenues in more detail. And then also on what I believe our key performance indicators are for the remainder of 2022. Over to you LaDon.

LaDon Johnson

Thank you, Kevin if you would refer to Slide 4, I'd like to expand upon -- beyond the revenue numbers Kevin already has discussed. Gross profit in the first quarter was $6.2 million as compared with $7 million in the first quarter of last year. Several factors were at play, most notably ships and product mix. We also experienced higher raw materials costs, which may continue through the year. Additionally, we have expanded production at our Michigan manufacturing plant. This capital expenditure which was mostly implemented in fiscal year 2021 will enhance the efficiency and margins longer-term. However, it also created some short-term variances. Gross margins were 55.9% also lower than in the first quarter of 2021, but in line with our annual target to maintain gross margins in the upper 50% range. That said, this was our 14th consecutive quarter with gross margins above 50%.

The increased losses for net income and adjusted EBITDA both reflected in the lower gross profit. Our bottom line results also were affected by the increase in operating expenses, which included a significant level of non-reoccurring expenses from legal and other consulting fees associated with the merger agreement with Bioceres. Through the fourth-quarter of 2021 and the first quarter of 2022, we've incurred $2 million to $3 million in such costs, and these types of non-recurring charges will continue until the deal is closed. Given how MBI defines adjusted EBITDA, I would remind you that you will not see the full effect of M&A related charges in our adjusted EBITDA table until the transaction is complete. We also incurred higher R&D costs to support the registrations and regulatory packages for some of the key products in our pipeline.

These were planned expenses and key to accelerating our growth. Looking forward, our budget anticipates that 2022 operating expenses exclusive of the non-reoccurring charges, will remain flat with OpEx in 2021 plus inflation. Finally, cash and operations increased to $8.4 million. We have been building inventory in anticipation of increased revenues going forward, and as we relocated the Pro Farm seed and full-year treatments into Europe. Accrued liabilities are significantly higher and cash will be affected as we pay down expenses associated with the merger agreement. Overall, as we look to the first half, we believe we are on track to meet our goal of low to mid-teens revenue growth, while holding our ongoing operating expenses in line. Let me turn the call back to Kevin.

Kevin Helash

Thank you LaDon. If you would turn to Slide 5, I'd like to point you to the key metrics that will define our success in 2022. As I alluded earlier, our commercial focus remains on continued diversification of our portfolio across crops and across regions. We're anticipating our first large sale of amplitude St., our new broad-spectrum biofungicides seed treatment product later this year. This will mark a significant in-road into the corn market for MBI through our partner Elba. We anticipate amplitude St. could be used on more than 5 million acres of corn in United States in the 2023 planting season. Our recent announcements of expanded agreements with their major global partners like Corteva, our key driver over future success. Our European seed treatment business is expected to nearly double in the first half of the year. This growth will be fueled on part for the launch of Taqua, an increased demand for our UBP seed treatment.

Likewise to growing relationship with reasonable doctor will continue to be the cornerstone of our expansion in the Latin American market. Additionally, our international full-year crop protection sales are expected to grow by more than 40% for the full-year, driven by demand-generating activities in the field, additional boots on the ground, and solid channel partnerships in Brazil, Chile, Mexico, and Central America. We are anticipating significant revenue synergies through our combination with Bio series and both companies are bringing important new products into the market in the next few years. As you likely know, Bio series recently received clearance for the import of its HP4 drought-tolerant soybeans into China, a major milestone in opening the door for the planting of these seeds in the top soybean growing regions of the world. The combination of our soybean treatments and Bio series HB4 drought-tolerant gene will be an exciting offering to take to our channel partners and growers in the future.

From a manufacturing perspective, the capital investment in our Michigan facility has allowed us to ramp up production to meet anticipated demand in 2022 and beyond. We've been able to service our customers without disruption during what continues to be a trying period for supply chains across all industries, not just agriculture. Our R&D pipeline continues to progress and we're focused on advancing a regulatory packages for our novel Bioinsecticide, Bionematicide products, MBI 306 in the United States, and MBI 206 in Brazil. Pending regulatory approvals, our current forecast is that we may launch both of these in the second half of 2023. Our Bio-herbicide platform is a key research program, and a significant part of the value proposition we bring to our merger with Bio series. All of our candidates are progressing in line with our expectations. We anticipate we could have a commercial launch of our MBI-007 herbicide in 2025, with additional products coming to the market in the next several years thereafter.

Recent decisions by the USEPA regarding herbicide safety underscore the importance of bringing growers new weed control options to support their operations. Of course, completing the Bio series transaction is top of the list for 2022. Bio series filed the initial F4 registration statement this week, which contains a preliminary proxy statement prospectus, and provides further detail on the proposed transaction. To summarize our outlook for the year, we anticipate first-half revenues will increase in the low to mid-teens percent based on growth in historically larger second quarter. We expect to maintain annual margins in the upper 50% range, and ongoing expenses are budgeted to remain flat plus inflation. [Indiscernible] should create a strong platform for the next wave of growth that we foresee through our combination with Bio series, and our ability to further leverage our unique portfolio worldwide. I'd like to turn the call over to the operator now for your questions.

Question-and-Answer Session


Ladies and gentlemen, [Operator Instructions] Please standby while we comprise the Q&A officers. [Operator Instructions] We have Dmitry Silversteyn from Water Tower Research. Your line is now open.

Dmitry Silversteyn

Thank you for taking my call. I'd just like to follow up quickly on a statement that you made regarding Latin American business expectations for the second quarter. You talked about the drought conditions in the region, but you talking about having a still strong Latin American business. So can you provide a little bit more granularity on what's driving your conviction in the strength to business or which markets are offsetting the drought impact of regions and crops?

Kevin Helash

Thank you, Dmitry, for your question. I'm going to -- I have Matti Tiainen with me the SVP of International Sales, and I'll hand it over to Matti to give you some more color there.

Matti Tiainen

Thanks, Kevin, and thanks, Dmitry, for the question. You're right, the South American drought and also the fertilizer prices are of course putting the farmers in a situation where they're thinking what to do and how to manage their crops, but our products that we're now rolling out in what we launched last year in the market are really key to the farmers decisions because we have our full-year fertilizers, so especially the fertilizer rolling off to the market. And these are specifically for managing antibiotic press, but these products also have a big impact on nutrient -- use efficiency and nutrient uptake on the plants. So they basically serve both of the downfalls, one is the stress that the plants are facing, and then also helping out with the nutrient use efficiency. So that is why we expect a stronger demand, and we've already seen that in the marketplace.

Dmitry Silversteyn

Okay, that's helpful. Thank you. I just want to make sure that on a fourth-quarter earnings call, you talked about double-digit or low double-digit growth in first-half revenues year-over-year. Now you're talking about most of the teams growth. Is the -- first of all, am I correct that it is in a -- an acceleration in your growth expectations? And secondly, is it customers replenishing faster inventories in the US, is it new products or product golden through markets and regions, what changed that they had to -- you're asking faster growth in the second quarter versus the original expectations.

Kevin Helash

Yes Dmitry is Kevin here. So as you can imagine, we are constantly looking at our business and assessing the needs of our customers, looking at market demand and all factors influencing the current crop year. What I'm going to do is hand it over to Kamal our Head of Global Marketing to talk about how we're seeing the second quarter in the first half overall.

Kamal El Mernissi

Yes. Thank you, Kevin and thank you, Dmitry. So basically as we move into the second quarter, we'll see a lot more demand for our insecticide and nematicide products, and each work that will be very strong on those offers. And as we move on into the teas, and of course, a lot more territory will open up in the U.S. So basically we'll be talking about the Midwest, we'll be talking about the Carolinas, we'll be talking about the Northeast where our products are really well accepted. So that gives us a strong indication about how much growth we can have. Basically there's a lot of discussions of course with our channel partners, and we also monitor very closely our sales directly to the growers, so basically the full through that our distributor are doing and so far we've seen single digit growth in terms of those sales through the growers. So that gives us a lot of indication here in the U.S.. and in California and Portugal, and as we open up in other territories as well, we should see that growth being materialized in the second quarter.

Dmitry Silversteyn

Okay. That's helpful. Thank you. And then final question if I may. You talked about North American and Latin America. Anything going on in Europe despite the war in Ukraine that is affecting your product sales there, either in a positive or a negative way, and what are the conditions there like in terms of farmer's ability to pay up earnings inputs with an increase in pricing that everybody is seeing?

Kevin Helash

Yeah. Hi Dmitry, it's Kevin. Because there's a lot of news in Europe right now, both positive and challenging, let's say. We do have a lot of good things going on in our business driven by our Pro Farm team. Matti, I'll hand it over to you to expand on that.

Matti Tiainen

Thanks, Dmitry, again for the question. So I think in Europe we're seeing, of course our hearts goes to the Ukraine and supporting all of our colleagues and partners there to overcome the situation. And in Europe, otherwise we see it's a difficult situation for the farmers, at the same time grain prices are almost record high depending on the crop, and farmers are thinking what to plan and when to plan. But I think there are advantages in Europe and in other places as well as that we -- a lot of our business is on the seed, so seed is the one that gets less affected by the turbulence in the markets, farmers need to see it and they know which genetics they rely on. The other thing is that we also rolled out -- in Europe we've signed a contract for our foliar product -- our foliar speciality fertilizer with Corteva in Europe. And this is also a stress management tool, a new trend Use Efficiency tool. So I think that, again, we're addressing with our foliar fertilizer and fine health line. We are addressing the problems that the farmers are having and at the same time on the seed side, we're also addressing similar problems, but we are tied to the seed which is less effective to the actual turbulence. So I would say that it's a public scenario, and we're seeing an uptake in Europe and the business is increasing. So there is good in it, but of course the situation in Ukraine is something that we as everybody else are very sorry about.

Dmitry Silversteyn

I understand. Thank you very much.

Kevin Helash

Thank you, Dmitry.


[Operator Instructions]

Kevin Helash

Okay. Operator, I think that concludes our Q&A session. Everybody on the call thank you again for your time. We appreciate your continued interest in Marrone Bio as we transition to become part of the larger global operation, with the type of diversification and expanded product offerings that will drive our growth and profitability. We believe our first half demonstrates the value will likewise brings Bio series with the world-class offering of unique, sustainable solutions for the ever-evolving needs growers. Thank you again, and we look forward to speaking with you in the coming months.


Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.

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