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spk07: 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.
spk08: 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?
spk01: 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?
spk09: Thank you, Kevin. It's been a busy few weeks as I've dived into the business and worked with the team to complete the year-end activities for this earnings announcement and the filing of our 10-K. I'm looking forward to spending more time on our future opportunities and how we deliver on our strategic and financial commitments. If you were to turn to slide eight, the combination of revenue growth, margin expansion, and operating expense discipline as a reduced net loss for both the fourth quarter and the full year by 58% and 46% respectively. We increased the revenues by 16% in the fourth quarter and 31% for the full year. Growth and profit growth was even stronger than revenue growth. The growth margins increased to 63.7% for the quarter and 59.6% for 2020. As the new CFO, I'll be working with the team to continue to balance funding for growth and cost discipline. As we show on slide 9, we are controlling R&D and SG&A expenses as we ramp up our revenues and expand our margins. Our operating expenses in 2020 included the one-time benefit of $1.4 million from the PPP loan. If you exclude this benefit, Spending still declined 6% year-over-year. Going forward, we have committed to keep operating expenses flat at the 2020 levels, plus inflation, even as we scale up the top line. Revenue growth, favorable margins, and good cost management flowed us through to the bottom line and to our cash positions. cash used in operations was higher in Q4 because of seasonal working capital needs related to the timing of product shipments at the year end. For the full year, the use of operating cash was significantly reduced as a result of the improvement in net loss and more efficient use of working capital across all quarters. Working capital improvements are a key focus moving forward. If you want to refer to slide 10, the need to upgrade our manufacturing plant is critical. Demand continues to grow and we need the additional flexibility to support production peaks. We are investing more than one million to upgrade our Michigan plant with the projected two-year payback. We expect this investment to improve skill and capacity utilization and, in turn, reduce cost of sales. That said, it will take the first year to implement the planned improvements with the full benefits to be realized in year two. If you want to turn to slide 11, the combination of operating cash and the cash from warrant exercises will be adequate to support ongoing operations in 2021. And the warrant overhead will be completely removed by year end. To conclude, on slide 12, we have a solid track record from which we can accelerate our path to break even and profitability. We have the platform in place to grow sales, particularly as we extend our geographic reach internationally. We've proved that we can effectively manage costs while still growing the business. And we have real opportunities to advance our R&D pipeline and pursue strategic opportunities that will enhance our leadership position in ag biologicals. It's my privilege to join the company at this important juncture, and I look forward to my future conversations with all of you. At this point, I'd like to turn the call over to the operator to begin our Q&A session. Operator,
spk07: Thank you. If you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We can now take our first question from Bobby Burleson, Canaccord. Please go ahead.
spk06: Bobby Burleson, Canaccord. Questions.
spk02: And welcome on board to
spk06: Thank you, Bobby.
spk02: So. Yeah, I guess for the whole team, you know 2020 outlook you guys are being appropriately cautious on the tough weather that you've seen at the start of the year. Curious X will be unusual weather impact. What kind of growth rate do you think? You know the normalized growth would have looked like in 2021. In the outlook.
spk01: Hey Bobby, it's Kevin. We feel really good about 2021. There's lots of good things in the market. Grain prices are very strong. And yeah, we're dealing with the impacts of COVID on a number of fronts, you know, including supply chain logistics. The way we look at it right now, we're projecting revenue growth in the mid-20% range year-over-year and continuing to drive mid-50% gross margins and holding our OpEx relatively flat year-over-year. we're pretty optimistic about the year. There are some challenges, of course, that we have all the time in agriculture, but it seems to be setting up quite nicely for us.
spk02: Okay, great. And in terms of organic growth versus industry, obviously we had a pretty meaningful acquisition, but we're starting to kind of anniversary that stuff. If we looked at organic growth for your business as it is now versus that mid-teens growth for the industry? Is this a sustainable premium growth rate? You're already bigger than most players, as you showed in that slide. At what point do you just kind of track with industry growth, do you think?
spk01: Mm-hmm. That's a good question, Bobby. So as you pointed out, the industry is growing roughly in the mid-teens, and we've been significantly outpacing that for some time. When we look into the opportunities to grow our existing platform around the world, different markets, different crops, combined with the growth rate of the industry, combined with our pipelines, We feel pretty comfortable we're going to continue at this rate and pace for some time.
spk02: Is there a ceiling that some of these companies are hitting that's just a structural ceiling where we can expect this to be an ongoing dynamic where you've got a lot of smaller players and very few independent guys of scale?
spk01: That's a great question, Bobby. You know, there are a tremendous amount of fantastic companies in our sector, which is great. I mean, I really support that. The more minds and resources that are focused on building out the sector, to me, makes the pie bigger, and, you know, we all benefit from that. I don't foresee a slowdown in the innovation in the sector at all, and that's coming from all parts of the business, whether you're talking about the multinational major players all the way down to the startups. What really excites me, though, is we have a platform that we've built over the last 15 years which will allow us to capitalize on that on that technology and all that innovation out there and accelerate our growth. And, you know, we're going to be very cautious about how we think about that, but I just see opportunity out there, you know, moving forward in this sector and for Marone. Great.
spk06: Thanks, Kevin. Thanks, Sue. Thanks, Bobby. Thank you, Tommy.
spk07: And we can now take our next question from Lawrence Alexander of Jefferies. Please go ahead.
spk03: Good afternoon. Could you give a little bit more detail on trends by region and by row crops versus non-row crops and types of product, just which ones are getting the most traction?
spk01: Yeah, so we see growth across all the sectors. For us, while we expect all of our platforms to grow and all of our product categories to grow, we certainly see our seed and soil treatment portfolio growing the fastest. But what we're really excited about is our move into the row crops. We have been traditionally... focused on high-end specialty crops, which has done us very well up to now. But our new portfolio that we've developed both within Marone and the excellent addition from the Profarm line of products has really moved us into that broadacre, row crop, corn, soybean market. And that's opened up a tremendous market opportunity for us. Yeah, I guess in terms of how are we going to grow, on every front that we can, we're going to grow geographically, we're going to grow by crop, and we're going to grow by sector within the entire space. All together, but certainly if I was to pick one that we see growing the fastest for us, it's certainly the seed and soil treatment category.
spk03: Okay, thanks. And then in terms of... So the R&D pipeline, are there any kind of significant studies or updates on particular products within that pipeline that we should be aware of?
spk01: Well, the one piece of good news I'd say coming out of that recently is we launched products ahead of schedule last year. We have at least one more product coming to the market this year. And looking out into our pipeline, we see, let's just say, two to three products per year being launched. And then keep in mind that when we launch a product, we typically start with one country or region, and then we continually expand from there. So there's a new product that comes to the market, but then we keep growing that footprint all around the world. But no, we said in Q3 that we expect roughly $50 million of incremental revenue to come from our pipeline by 2026, that still holds, and upwards of 100 million coming by 2030, and we still feel on track to deliver.
spk06: Okay. Thank you. Thank you.
spk07: And we can now take our next question from Samir Joshi of HC Wainwright. Please go ahead.
spk05: Good afternoon, and thanks for taking my question. Sue, welcome to the team. Looking forward to meeting you sometime soon.
spk09: Thank you. I'm looking forward to it.
spk05: My first question relates to, again, just digging deep into the revenue projections for this year. You already grew around 31% last year. You introduced four products this year, and the projection is for around 25% growth. Are you expecting your traditional or previous 11 products to have muted growth? Because these full products should start contributing to the top line as well this year. So can you explain us that?
spk01: Yes, Amir. Well, Amir, nice to talk to you again. If I heard your question right, I think you're asking, are you expecting our base products to continue to grow at the same pace that they have? Is that correct?
spk05: Yeah. And is it expected to be slower than the new products that you are introducing, given that your year-over-year growth rate is only 25%?
spk01: Right. Well, I'd start by saying I'm pretty happy with 25% year-over-year growth. certainly given the broader sector, but when we look at our portfolio that we have today and the opportunity to take that into Europe, take it into South America where we're just getting going, we see tremendous opportunity there and we think that all of our product lines will continue to contribute and grow at at least the same pace as the industry overall, if not higher. And then our product pipeline is really icing on the cake for us in terms of, you know, continue to add more products. And as they move from adoption to early adoption to, sorry, from early adoption to adoption, we see that ramp up, you know, pretty quick as we have previously when we've launched products. Yeah, going out, we certainly do not see any reason why our growth rate is going to stall. And certainly, as we continue to bring products through our pipeline, and we have some very, very interesting new products coming through that pipeline, I see us continuing on the same path that we've been on.
spk09: Understood.
spk05: On the gross margin front, the fourth quarter was very strong and it was because of product mix. I'm guessing it was the raw products that formed the bulk of this series. So going forward, if you're going to increase your raw product mix, how does the gross margin Yeah, we continue to focus on gross margin. We had a very good year this last year in 2020.
spk01: It does move around somewhat depending on seasonal demand and quarter-by-quarter demand in terms of which products are moving when. We were very fortunate in the fourth quarter. We had really good sales of our seed treatment line and our ProPharm foliar line, which are give us very healthy margins. Going forward, we're going to continue to look to optimize our portfolio, and as Sue mentioned in her remarks, we believe that the investment in our Michigan manufacturing facility will also help to lower our COGS, and thereby help to increase our margins going forward. And then I'd say overall, as our pipeline continues to refine and upgrade our existing products in terms of concentration and efficacy, we certainly see opportunities going forward to move from mid-50s consistently upwards in the coming years.
spk06: Got it. Thanks for that. I would send that to you too. Thank you. Thank you, Samir.
spk07: And we can now take our next question from Nathan Weinstein of Aegis Capital. Please go ahead.
spk04: Hi, Kevin and Sue. Thanks so much for taking my question. And nice to see the continued progress in the business. So earlier, I think it was in your prepared remarks, you broke down kind of the number of small players in the biologic space that you see around the industry. It's hard for me not to think of that list of companies sort of as an opportunity set for Maroon. And Maybe you could just give a little color on future M&A and kind of what some of the criteria might be.
spk01: Yeah, no, nice speaking with you again. In terms of M&A, you know, I go back to saying that the focus of all of us here is to drive the results of the company that we have today. We have lots of opportunity to grow our product line. We've got an excellent portfolio, lots of international expansion. I'd say we're just hitting our stride in terms of getting ProPharm integrated with the MBI lines and all the permutations and combinations there to build new products, which is already in our pipeline. But we do see an opportunity to make some selective acquisitions. There are a number of players out there that we believe would be a fantastic combination with us. So just like everybody else in the industry, I'd say we're thinking about permutations and combinations there. But to be clear, we've got some pretty strict criteria that we've set out for ourselves in terms of they have to add shareholder value in the near term, they have to be accretive, they have to bring either new technology, new market access, access to new crops, and provide us with meaningful synergy. So pretty tough, right, to bring something in and drive the results straight to the bottom line in a short period of time. But, you know, we're certainly paying attention to opportunities in that sector or in that area.
spk04: Thanks, Kevin. That's very helpful. And just one follow-up from me on the ESG theme. It seems like it's always been part of the DNA of Merone Bio. I'm looking forward to seeing that report come out. But just maybe you could make a comment on the broader industry and if you see increasing awareness from some of the majors in this space regarding ESG.
spk01: Yeah, thank you. Well, certainly you're right. I mean, I go all the way back to Pam Marone's vision, right, of this company and why we're here in the first place. And certainly it has a strong ESG backbone. From our standpoint, it is part of our DNA, it's part of our culture, and we're spending a significant amount of time making sure we are measuring ourselves properly, we're setting industry-leading objectives for ourselves. We think we're doing, in fact, we know we're doing lots of great work in the ESG area, But we also know we've got room to improve. So I'm really looking forward to finishing up the work this summer and presenting the findings to all of you later on this year. But it's an ongoing part of our culture and it will be an ongoing part of our business.
spk06: Thank you, Kevin.
spk04: And then I guess there was another part of that question which was just do you see other larger players starting to become more aware of the importance of ESG as well?
spk01: Yeah. Sorry. You asked that question. Yes, I do. Absolutely. You know, I think it's absolute table stakes today for any company and for any, any business. And I include our grower customers in that. I mean, it, It is demanded by our customers at large, consumers, supply chain, everybody from throughout the entire industry worldwide. Yeah, for sure. It's top of mind, in my opinion, with everybody out there.
spk06: Thanks for taking my question. You're welcome.
spk07: We can now take our next question from Stephen Rolston. That's Zach. Please go ahead.
spk00: Good afternoon, and thank you for taking my question. I'd like to move back to a prior question, and that is to get a little more granular in your changes to your business mix, dovetailing the change in the geographic mix versus your increased productivity. penetration to row crops. In row crops, it seems self-evident with the ProPharm acquisition and your agreement with Rhizobacter and the new approvals like with PaceSetter. But in the geographic, you're expecting South America. to rise from about 6% of your revenues to 20%. And given that your base, your business is growing in the 20% to 30% range and having that additional mix to it, that's at least a 300% increase, if not more. Could you talk specifically of what that potential is you see in South America? and the agreement with Rhizobacter having the two components and one of them being selling your products. And also, as a separate question, but in the same tone, is what is going to be the driver in the Asia-Pacific area, having that area increase from 14% to 23%?
spk01: Right. So I'll start with Latin America. And for us, the focus in that market is corn soybeans. And so we're building on our experience in Europe that ProPharm has had to move into that market. Rizobacter is one of our major channel partners down there. But we're working with a number of others as well. And so we're starting in the south, Argentina, Uruguay, Paraguay, Bolivia, and then moving our way into Brazil. And we expect, we were hoping to have a little more traction in Brazil this year, but they ran into some pretty tough COVID conditions that delayed us a bit. But the good news is the demand and the excitement and the enthusiasm in Brazil is certainly there, and the results we've seen thus far with our products in corn soybean markets in Latin America has been phenomenal. So we're really looking forward to 2021.
spk00: Did the drought affect that also?
spk01: Not as much drought as COVID really restricted the ability to get out and do it, you know, the – the trials and the demos and the technology transfer with the growers and the distributors. So that, I would say, would have been the biggest drag, I'd say, on moving faster in that market. So, you know, it's unfortunate, but we've got great partners down there, as I said, eager to get going, and as soon as we can do more face-to-face and more training and trialing, we believe we're gonna take off in that marketplace. In Asia Pacific, we're talking about a small starting point, so the percentage is a bit higher, but I would think if we're thinking about where we're going to grow We're certainly going to continue to grow in the United States. We're moving into Canada. We're expanding in Mexico. We've got an excellent footprint in Europe already that we continue to launch new pro-farm products into as well as introduce our legacy maroon products. Latin America is an unbelievable opportunity for us given the size of the market down there and how our products fit. So, yeah, it's a lot of activity and a lot of big markets with a lot of opportunity for us.
spk00: That potential in Latin America, roughly, how much of the demand do you expect to be from that southern cone?
spk01: In terms of revenue?
spk00: Yes. I mean, are you expecting... looking at the base business, just looking at Latin America, would you expect that to be at least 50% of your Latin American sales? Or are you expecting even more from it?
spk01: Well, right now we're expecting in 2020, 6% of our revenue came from Latin America. And I'd say we're getting well established there. And by 2023, we're expecting 20% of our revenue to come from Latin America. That number could easily be significantly larger depending on the rate of our adoption, but that's what we have pegged right now.
spk00: Actually, I was getting a little deeper than that, looking at the Latin American businesses as a base, like that's 100%. and looking at the mix within Latin America. And since you're having this concentration on row crops, well, the breadbasket down there in the southern cone in Argentina, Uruguay, Paraguay, in the southern part of Brazil, that would seem to be a major driver of the Latin American row crops.
spk01: Correct. That is correct. And then we also have products coming to also get on the wheat acres, which we see as an opportunity as well, specifically in Argentina. But that is correct. You've hit the nail on the head there.
spk06: All right. Thank you for taking my question. You're welcome.
spk07: At this time, this concludes our question and answer session. I'd now like to turn the call back to Mr. Kevin Helash for his closing remarks.
spk01: Yes, thank you, operator, and thank you again for your time and attention today, everyone. Our 2020 results underscore the turning point we have reached in our evolution as a commercial provider of sustainable biological solutions. With a target for revenue growth in the mid 20% range and an annual gross profit target in the mid to upper 50% range, we have established a commercial base from which the company can accelerate its velocity and cement its leadership position in the space. We intend to build on this platform in 2021 and look forward to sharing our progress with you in the future. Thank you.
spk07: This concludes today's call. Thank you for your participation. You may now disconnect.
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