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Bioceres Crop Solutions Corp. (BIOX)

Q1 2016 Earnings Call· Fri, May 13, 2016

$0.49

-5.58%

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Transcript

Operator

Operator

Good day, ladies and gentlemen welcome to the Marrone Bio Innovations First Quarter 2016 Earnings Conference Call. At this time, I would like to turn the call over to Linda Moore, General Counsel. And today’s conference call is being recorded.

Linda Moore

Management

Good afternoon. Before beginning, I would like to remind you that this conference call may contain statements regarding management’s expectations, hopes, beliefs, intentions or strategies regarding the future as well as projections, forecasts or other characterizations of future events or circumstances. Such statements are based on management’s current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those that management has anticipated. Such statements involve a number of risks and uncertainties, some of which are beyond management’s control or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these statements. Important factors that could cause differences are contained in the reports filed by the company with the Securities and Exchange Commission, including the Form 10-K that the company has filed on March 30, 2016 and our Form-10-Q to be filed with first quarter of 2016, under the heading Risk Factors and elsewhere and in our earnings release posted on the company’s website. Should one or more of these risks or uncertainties materialize or should any of management’s assumptions prove incorrect, actual results may vary in material respects from those discussed today. Any guidance that management may offer in this conference call represents point-in-time estimate. 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 answer your questions. Now, I will turn the call over to our Chief Executive Officer, Pam Marrone. Pam?

Pam Marrone

Management

Thank you, Linda. Good afternoon and thank you to everyone for joining us. With me today is Jim Boyd, our Chief Financial Officer; and as you just heard, Linda Moore, our General Counsel. Our business has grown in the first quarter of 2016 and we continue to drive the growth and momentum we reported last quarter. Our results show growth in adoption rates, orders, shipments and revenue. As we remained keenly focused on rapid growth we are also managing cost. The enthusiasm and energy in the company that I noted on our year-end call has only increased. We are working hard to implement our market strategy to drive demand, develop additional core products and to accelerate growth. We believe that we are on the right path to drive value to all of our stakeholders. As you may recall from our last quarter call we identified a number of key operational objective. We captured a number of those during the first quarter and continue to work towards a number of others including additional seed treatment collaborations, row crop distribution deals, international distribution agreements and Zequanox partnership. We are also excited to have recently added several new sales and technical services personnel. As we’ve discussed our sales effort is fundamental to our success both short and long-term. Before I go into additional detail, I would like to review the highlights from the first quarter. Total revenues for the quarter were $2.7 million, an increase of 30% versus the first quarter of 2015. Additionally in order to provide our investors with supplemental information regarding corporate performance, we are introducing a non-GAAP product shipment measure. For this quarter product shipments were $3.9 million, a 79% increase from the first quarter of 2015. Jim will describe this measure in more detail later. This growth is…

James Boyd

Management

Thank you, Pam and good afternoon, everyone. I’d like to walk you through our first quarter results. Our reported total revenue in the first quarter was $2.7 million, up significantly compared to $2.1 million in the first quarter of last year. As a reminder, our total revenue includes revenue from customers on the selling methods as well as customers on the sell through methods, but does not include deferred revenues not yet recognized from customers on the sell through revenue recognition method. Therefore to help you understand the pace of our business and the demand for our products, we are now also reporting product shipment. This new non-GAAP measure which is fully defined in our press release is intended to approximate the total value of product sold and entered into contract for sale in a given period. Product shipments for the first quarter were $3.9 million compared to $2.2 million for the first three months of 2015, a 79% increase. We believe this illustrates our improvement in sales performance. Now returning to GAAP reporting. Our gross margin in the quarter was 15% compared to 2.8% in the last year’s first quarter. This is the result of improved capacity utilization, continued focus on inventory management and better product sales mix. It is important to note unabsorbed manufacturing cost from idle capacity during the quarter was approximately $222,000 down from approximately $590,000 in the first quarter of 2015. I would like to take a moment to recognize all the people at our Michigan plant who are working extremely hard and long hours to supply the increased demand we are seeing, thank you. We also took an inventory right down adjustment of $449,000 during the quarter. Excluding the unabsorbed manufacturing cost and the inventory write downs gross margin would have been 40.1%. We…

Operator

Operator

Thank you. [Operator Instructions] We’ll go to Tyler Etten with Piper Jaffray.

Tyler Etten

Analyst

Hi, guys. Thanks for taking my question today and I appreciate it. One thing I was hoping we could talk about is the inventory write down. What was the cause of the inventory write down and we wouldn’t expect something like that to happen again given the current levels of inventory is that the way to look at it?

James Boyd

Management

Sure, I’ll handle that. Generally speaking we evaluate our inventory constantly. We’re looking at appropriately a conservative way. A portion of the first quarter write-off was related to our transition to new formulations of Grandevo, another portion reflects aged raw materials related to our 2014 focus - forecast. And finally a portion relates to the startup production of Venerate and Majestene.

Tyler Etten

Analyst

Okay, great that clears that up. Okay how about the - I guess what stages of talks are you with these international distribution contracts? And what type of timeframe are you looking forward to have in international agreement locked up. Are we looking at some time this year or sometime in the coming month or just any color around that would be great?

Pam Marrone

Management

So we’re working on distribution agreements in multiple regions and we do have - we do expect to have some sign this year it might not be about final commercial agreement but it could be like an MOU stage. And so we can get going with the testing, which is important to not miss the season. But that is a key focus area for us and we have - in all regions we have multiple activities going on.

Tyler Etten

Analyst

Okay, great. For Zequanox award that you guys received this quarter it’s a two year award do you expect that agreement is going to be fairly consistent quarter-to-quarter or is there some lumpiness to it or how should we think about that?

Pam Marrone

Management

Because the treatment happens at one time of year the money will be - it will all come in a pretty much a one lump sum for the treatment.

Tyler Etten

Analyst

Okay. And what time of year do they usually…

Pam Marrone

Management

I believe that for the Zequanox that the first treatment is actually going to be in 2017.

Tyler Etten

Analyst

Yeah but in the third quarter I think.

Pam Marrone

Management

Yeah probably in the third quarter. Yeah.

Tyler Etten

Analyst

Okay, great. Alright, I’ll jump back in the queue. Thanks.

Operator

Operator

Thank you. [Operator Instructions] We’ll now hear from Sameer Joshi with Rodman & Renshaw.

Sameer Joshi

Analyst

Hey, guys.

Pam Marrone

Management

Hi.

Sameer Joshi

Analyst

So following up on the previous question about the Great Lakes’ initiative. Is that an assessment allocation the $641,000?

Pam Marrone

Management

I’m sorry I didn’t understand. It’s a grant, it’s actual money granted out and it goes to ourselves for the Zequanox as well as our partners who are developing and helping us develop some of the treatment methodology.

Sameer Joshi

Analyst

Okay. So is this money for assessing the efficacy or is it for - is it revenues on the long-term basis?

Pam Marrone

Management

It assuming that the treatment works like planned then it could be a source of recurring revenue, but in the future.

Sameer Joshi

Analyst

But it’s specifically a demo right.

Pam Marrone

Management

Yes, specifically a demo right now, yeah.

Sameer Joshi

Analyst

Okay. Do you have any idea of what the annual revenues if approved and adopted would be for the…

Pam Marrone

Management

No.

James Boyd

Management

But those lakes are very big.

Sameer Joshi

Analyst

Okay, no that’s helpful. So moving on historically Q2 has been the biggest quarter. Should we expect similar behavior this year as well or do you think seasonality and the product mix makes it less of a lumpy quarter the revenues going forward.

Pam Marrone

Management

Q2 has historically been our largest quarter, that’s correct.

James Boyd

Management

But that is an interesting question because of growth.

Pam Marrone

Management

Yeah.

Sameer Joshi

Analyst

No, so the question is do we - should we expect the more smoothening out of revenues over the next year?

Pam Marrone

Management

Q2 was historically when - because that’s when the crops are - a lot crops are being treated in the lot of the regions it’s typically of the largest quarter.

James Boyd

Management

I think our sales are going out very close to the time that they are being applied. So from a seasonal basis we would expect Q2 to be the largest quarter, until we probably can give you advice otherwise.

Pam Marrone

Management

Yes, as international kicks in especially in the Southern Hemisphere that will change that mix. But until those ramp up more its U.S. based and therefore yes Q2 is typically the largest.

Sameer Joshi

Analyst

Okay. So the next question relates to the Majestene sales as the first sales were achieved in first quarter. But do we know what was or are you disclosing what percent of your total revenue was from Majestene and going forward what do you expect it to be over the next two three quarters, as a percent of total revenue?

Pam Marrone

Management

We don’t disclose revenue by product. Yeah, we don’t disclose revenue by product. I would just say that Majestene sales met our plans and we are happy with that and going forward we have nice plans for growth of that product.

Sameer Joshi

Analyst

Okay. And then just a book keeping issue or better understanding of the new measure that has been introduced. The $1.3 million in change in default product revenue, does that compare to the $1 million number that was referred to during the last earnings call?

James Boyd

Management

Yeah.

Sameer Joshi

Analyst

Okay. So it is... because I just wanted to compared it with that and it includes the sell through shipments, right? Shipments to sell through customer?

James Boyd

Management

The sell through portion that is deferred does go into the deferred on the balance sheet, if that’s the question.

Pam Marrone

Management

It is included in the product shipments, yes.

Sameer Joshi

Analyst

It is included in the product shipments. Okay, I think that’s all from me right now. Thanks.

Operator

Operator

Thank you. And we will take a follow-up question from Tyler Etten.

Tyler Etten

Analyst

Just one for about this new seed treatment agreement. You said that it was going to be delivered to growers for field trials. Are those just trials alone or is there going to be real sales that happens to customers that we’ll be applying this to their normal growing operations?

Pam Marrone

Management

Not sales because it’s not registered yet. So we would have to get this treatment registered first. Our uses Marrone Bio the pesticide uses of our products as part of the seed treatment are all registered already and the micro rising part of it requires just state. So the state registration so it’s not a cumbersome process to get the registration. But this year it will not sales that will be out in trials and demos.

Tyler Etten

Analyst

Okay, great. Thanks.

Operator

Operator

Thank you. This does conclude our question-and-answer session. I will turn it back over to Pam Marrone for any additional or closing remarks.

Pam Marrone

Management

Thank you everyone for your questions. We continue to see a tremendous opportunity ahead of us. As I previously discussed in addition to growing sales to current channels we are focused on several operational objectives that we believe would best position us for additional growth including row crop distribution partnerships, more seed treatment distribution partnerships, international distribution agreements, Zequanox distribution of partnerships and registration and launch of the Grandevo WDG formulation. Thank you again for your support and continued attention and interest in Marrone Bio Innovations.

Operator

Operator

Thank you. Ladies and gentlemen that does conclude today’s conference. Thank you all again for your participation.