Marrone Bio Innovations, Inc.

Good day and welcome to the Maroon BioInnovations Fourth Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Linda Moore, General Counsel.

Good afternoon, everyone, and thank you for joining our call. Welcome to the 2020 Fourth Quarter and Full Year Earnings Conference Call for Maroon BioInnovations. On the call today are CEO Kevin Helash, and CFO Su Chung. If you would please refer to slide two, 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 report, 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 who is joining us on the call today. I'm pleased to be accompanied by our new CFO, Sue Chung. While Sue has only been with us a few weeks, she's already begun to put her positive mark on the organization. We're all looking forward to working with Sue as we continue to expand MBI's position as a peer play leader in the AgBiologicals market. For today's call, I'd like to speak to our full year highlights and outlook and have Sue provide you with a more detailed financial overview. 2020 was a remarkable year for MBI by any standard, and I believe we are just starting to hit our stride. Within the agricultural sector, we are in the right place at the right time and are uniquely positioned to take advantage of the robust growth we see in 2021 and beyond. Let me elaborate. If you return to slide three, we are now consistently delivering results that raise the bar on our leadership position in ag biologicals. Even in the face of continuing constraints from the global pandemic, we demonstrated the value of our portfolio and the resiliency of our business model. We delivered our 10th consecutive quarter of increased revenues with year-over-year growth of 31% and a five-year revenue trigger of 29%. We also delivered our ninth consecutive quarter of gross margins above 50% and a record for any quarter at 63.7%. Gross margins for the full year were 59.6%, a 470 basis point improvement that was primarily a function of a favorable product mix, particularly in sales to the row crops market. We've also challenged ourselves to be a leader when it comes to running an effective and efficient organization. To that end, I am pleased to report that our operating expenses have been lower in each of the last three quarters. We ended 2020 with an operating expense ratio of 104%, a dramatic step improvement from 150% for fiscal year 2019. This change is particularly impressive in light of the fact that we held the line on costs, even as we fully integrated ProPharm. From a commercial perspective, every piece of our business contributed to these results. Our foliar treatments and specialty crops, the heart of MBI historically, delivered more than 25% revenue growth year over year. We strengthened our market share against direct competitors in some of the key specialty crop markets, such as almonds and wine grapes in California, and our BioUnite strategy continues to deliver strong results and we have new partnerships and product offerings coming to the market that are poised to expand this part of our business. We moved four products for crop health and crop nutrition out of the pipeline and into the launch phase in 2020. They are now gaining traction with early market adoption and have the potential to deliver a meaningful contribution to our sales this year. We are also bringing a fifth product to the market in 2021 in the crop protection category that also has a potential to be a healthy contributor to our business in the years to come. Of course, the value of the ProPharm acquisition can't be emphasized enough. ProPharm has been a driving force behind the mixed shift in the products we sell and the regions where we do business. As you can see, shown on slide four, our growing presence in the major row crops is one of the most significant changes we have made as an organization over the past year. With the gains we made in 2020, we are well on track for this market to be more than half of our portfolio in 2023. We now offer more plant health solutions and more products that can be used as seed or soil applied treatments than ever before. Turning to slide five, 20% of our sales last year were in the major row crop producing areas of Europe and Latin America, up from 6% in 2019. This is a step change towards our goal of having a relatively even split in sales between North America and the rest of the world in 2023 and toward capturing the growth opportunity that comes with that diversification. This combination of robust top-line growth, continued strong margins, and a flattening OpEx curve led to a 46% reduction in net loss for the year and a 31% improvement in adjusted EBITDA. Operating cash mirrored these improvements, and by year-end, we had seen a 25% drop in the use of cash. We are clearly at an inflection point as we move even closer to break-even on an adjusted EBITDA basis. We have spent time this past year evaluating our position and our opportunities against others in the pure plague ag biological sector, as depicted here on slide 6. This analysis is by no means all-inclusive, but it provides our best estimate of the revenues given that many of these companies are private. With that being said, we believe it offers a relative snapshot of what the industry looks like today. Given these parameters, it is evident that MBI stands alone within this sector. As you can see, the market for biological products is highly fragmented. By our estimate, there are well over 120 standalone biological players, with more than 90 percent of them having annual revenues of $10 million or less. Roughly 80 percent only serve as one product category, and only a handful have dedicated manufacturing capabilities. A large number of these companies are early growth stage businesses with limited commercial offerings and market access. MBI is unique in that we have built a platform with unparalleled depth and breadth of product lines, manufacturing capacity, and distribution networks. We can leverage our size and scale to collaborate with our industry peers and expand upon our existing leadership position. While we continue to see robust growth in our current product portfolio and pipeline, We also believe ample opportunities exist for consolidation that would create significant additional shareholder value. However, we have set very clear guidelines for ourselves. Any partnerships, mergers, or acquisitions must immediately broaden our portfolio and expand our distribution network. We must be able to capture material synergies, and any acquisition must be accreted to earnings in the short term. On slide seven, I would note that we remain cautiously optimistic about the outlook for 2021. As you have likely seen reported, the ag industry is coping with some of the lingering effects of COVID-19, as well as tough winter weather conditions. Our team is doing an excellent job of managing through any logistical challenges, and the sales force is gearing up to return to more face-to-face interaction with our customers to support their sales efforts. Looking forward, we anticipate full-year revenues will grow in the mid-20% range, well above the norm in the broader ag industry and above our peers in the biological sector. We believe we can continue to deliver annual gross margins in the mid-50% range, and we expect to hold operating expenses in line with 2020 plus inflation. The combination of these three metrics will move us toward our near-term goal of reaching break-even and turning profitable on an adjusted EBITDA basis. In terms of our revenue flow, the first quarter in agriculture is quite variable, as demand in the period is highly dependent upon activity in Q4 combined with spring weather. The growing season in California is starting off dry, and this may push the seasonality of our sales into the second quarter. We continue to expect a first quarter with revenue growth in line with last year's first quarter and a strong first half in line with our annual growth target. Our growth, now and in the future, is predicated on the demand for a more sustainable approach to agriculture. A commitment to protect the environment is critical to all of our key stakeholders, and we have embarked upon a full-scale review of our ESG capabilities and metrics. We are in the midst of this work and expect to publish a report later this year that will highlight not only what we have achieved, but where we can improve. Sustainability is a cornerstone of our mission and culture. Our objective is to be the recognized leader within the ag biological sector, not only for growth, but for our commitment to the entire ESG culture throughout our organization. I'd like to turn the call over to Sue now and welcome her officially to her own bio. Sue?