Good day, ladies and gentlemen. Welcome to the Marrone Bio Innovations’ Fourth Quarter and Full Year 2016 Earnings Conference Call. Today's program is being recorded. At this time, I would like to turn the conference over to Ms. Linda Moore, General Counsel. Please go ahead Ma'am.

Good afternoon, everyone. And thank you, for joining our call. 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 the 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 reports filed by the Company with the Securities and Exchange Commission, including the Form 10-K that the Company will file by March 31, 2017 under the heading risk factors and elsewhere and in our earnings release posted on the Company’s Web site. 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. Additionally, the Company will be making reference to certain non-GAAP financial measures on this call. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in the Company’s earnings press release published today, which is posted on the Company’s Investor Relations Web site. Any guidance that management may offer in this conference call represents a 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.

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. Fiscal 2017 was a truly pivotal year for our Company. We are excited to have ended the year with strongest level of shipping activity in our history. Fourth quarter product shipments were more than double 2015 first quarter level. More importantly, our momentum has continued into the beginning of 2017 as we’ll discuss. I would like to focus on two areas; number one, our financial highlights for the full year and the fourth quarter; and number two, our continued achievement of strategic goals that are driving our rapid growth. Let's start with the full year highlight. We grew 2016 GAAP revenues by 43% to $14 million. Product shipments grew at nearly double that pace by 81% to $16.4 million versus $9 million in 2015. Every one of our major agricultural product Regalia, Grandevo, Venerate and Majestene contributed to our growth. We were particularly pleased to see Regalia; still our largest revenue product perform well; Grandevo shipments were also up; Venerate shipments more than doubled this year; and Majestene, our newest pest management product, which launched in January 2016, was a significant contributor to our total growth. We are proud to have received the Best New Biopesticide award for Majestene by Agrow, our industries’ leading trade publication. We have seen yield and quality in places on a wide range of vegetables, fruits, row crops and turf. The market response to this bio-nematicide is encouraging, and we are working to capture as much of this large market and major business opportunity as quickly as possible. Every one of the four ag products have shown solid or improving levels of…

Thank you, Pam. Good afternoon everyone. Our GAAP revenue in the fourth quarter was $2.7 million, up 40.6% as compared to $1.9 million in the fourth quarter of 2015. For the full year of 2016, we grew our GAAP revenues to $14 million, up 43.3% versus $9.8 million in 2015. This GAAP revenue number does not include deferred revenues not yet recognized from customers on the sell-through revenue recognition method versus the sell-in method. Please note that while we use the sell-through method for certain customers, our standard terms of sale do not include any return or inventory rights except for normal warranty claims. As customary for us, we are also providing information on product shipments, a non-GAAP measure of sales that includes the net change in deferred revenue in the period; in order to represent the value of our product shipment volumes in a given period and to provide additional insight into our business performance. In the fourth quarter, we grew product shipments by 102% to $5.2 million as compared to $2.6 million in the fourth quarter of 2015. As Pam highlighted, this is the record for product shipment. I'll also repeat that we expect to achieve another record for product shipments in the first quarter of 2017. For the full year of 2016, we grew product shipments to $16.4 million, up 81.1% versus $9 million in 2015 and we expect to continue continued high growth in 2017. Our gross margin in the fourth quarter increased to 39% as compared to a slightly negative margin in the fourth quarter of 2015. The improvement reflects growth in revenues, product mix and improved manufacturing efficiencies. We were very pleased to see manufacturing cost from underutilized capacity during the quarter drop to $234,000 from $600,000 in the fourth quarter of 2015. For…

Thank you all for listening. Before we go to your questions, I would like to close with the following comments. First, we have just closed the strongest quarter in the Company's history; $5.2 million in product shipment is a record. We also announced today that we expect to exceed that number in the first quarter of 2017. Second, we have the most efficient operating structure in the history of our Company. We have been disciplined and created cost efficiencies and greater capabilities. Third, our Michigan plant is performing with excellent and driving improvements in gross profitability. That team has not missed a bit. If you put together record product shipments, a more efficient cost structure and vertical efficiency, I think that demonstrates that this Company has tremendous promise. After 2014 and in 2015, we needed to show investors we can get it done. As you know, there are far too many bio-based science companies that have not been able to back up their technology with the strong business foundation. I think we have clearly demonstrated that we have both. Thank you.

Now it's time for questions.

[Operator Instructions] And first is Sameer Joshi, Rodman and Renshaw.

So just a high level question for the revenue recognition, is there any provision for product returns from these sell-through customers that you have sold product, shipped product to?

No, that’s what I was trying to indicate with my comments. There are no inventory return rates when we ship the product to our customers, the customer takes ownership and they own it.

So, the 2.6 -- roughly 2.6, in deferred revenue will ultimately be recognized over the next few quarters. Is that a correct statement?

Yes.

A few questions about product development, on the February announcement from Groundwork and the joint development for the seed treatment what are the next steps in this process now. When do you actually expect sales from this effort to materialize?

Well, we’re repeating field trials this year and doing some semi commercial trials. But we actually haven’t set a launch date yet. So we’ll see how the grower demos go this year in the semi-commercial trials, and go from there.

So sort of similar question for the Albaugh development, there was a microbial product for state seed treatment being developed, any progress on that?

They have purchased product, that product is in the market.

It is in the market already.

Yes, that’s in the market.

And you did refer to some bio-herbicide development. Maybe can you give us a little bit more on how that portfolio is being developed and what are the next products to be expected from there?

Yes, so we have three but we focus most of our -- the R&D resources we have dedicated to product development, we focused it on 010. So 010 is a systemic bio-herbicide and from that one of our microbes. And when you spray it on the weed, it moves in the plant and kills a broad range of weeds, especially glyphosate resistant palmer pigweed palmer amaranth. And we said 2016 increasing the yields in manufacturing and developing new formulations that we're more potent than previous formulations and more stable; so we're redoing the toxicology from previous formulations; so it's in the tox test now and so far so good; and putting together all the things necessary for the EPA submission. We have another herbicide that is MBI-011, which is formally an extract of Chinese pepper plant, but we can make it synthetically. And we are formulating that now and working a bit on that one as well. It's a burn down herbicide as opposed to a systemic herbicide, like 010. It's already registered by EPA and we're just developing a better formulation. And we haven’t launched that one because of the high manufacturing cost but we have a toll manufacturer who is making good progress on scaling it up for us. So we’ll probably see that one comes back and talked about further in a future call.

[Operator Instructions] And next is Tyler Etten, Piper Jaffray.

I was wondering if you could expand a little bit on Eden. Could you explain a little bit how a first -- is it something that replaces on that base currently used by a synthetic chemical? Or is it a standalone product that increases quality in the respective crops?

It's a standalone product. So it can be used along with any other programs that can use their normal pesticides or whatever they are using, and it adds an additional yield. And it is not like any other product on the markets. There are other sun blockers sun stress products, but they are put on much later during a sun event on the fruit or the nut. And they turn the crop white because they block, they are kale and clay or calcium carbonate because they block the sun. Ours is a very different mode of action. You put it on late bloom or early nut or fruit set, so much, much earlier. And then it reflects that lit peak and light, which results in the higher yield. It doesn’t leave any white deposit, so it's completely clear on the leaf, so the growers don’t have any restrictions in having to wash that off.

Then for Majestene, what type of customers are adopting this product, I know obviously, there is a wide variety of crops that can go on. But what is the -- what customers really resonate in that?

Potatoes, onions and tomatoes, those are some of the big crops for Majestene in 2016.

Then could you remind us which products are currently made in-house. Obviously, a long term goal is to be vertically integrated. But just which ones are currently?

So Grandevo and Zequanox are fermented in-house; although, they’re dried with a contractor. And Regalia is formulated in-house. And then Venerate and Majestene are fermented elsewhere.

Then just one last one here. Obviously, there is lot of international markets you guys are being growing and have approvals then. What is the priority in 2017 and any new markets that you believe if you could fit in there sometime this year?

We’re focusing on markets where there is the fastest registration, so we can get revenue. They may be small countries but that still mean -- that doesn’t mean it's not a significant market for us, because of the intensity of the crops. So for example, in Africa, Morocco Regalia is registered in Morocco in Latin America, countries like Guatemala where we are registered with Regalia and working on our other products. Of course Mexico is a growth driver, because it's one that we can get registration there quickly. And generally, because there’s a lot of growers in Mexico also U.S. growers, they hear about our products; so adoption is pretty rapid like with Grandevo; and then faster registration countries also would include Philippines, Korea…

Next that is Robert Smith, Center for Performance Investing.

Just a couple of questions. Do you expect the R&D budget to stabilize here?

Yes. So our R&D budgets are -- were not really expanding much of R&D at all. We have replaced positions that were open and they were a quite a few open positions. But in terms of lot of new hiring, we don’t expect to do a lot of new hiring in R&D.

But I mean decline from '15 to '16 will at least stabilize in '17?

I would expect R&D to be similar small increase in '17 mainly due to increased formulation and regulation.

Can you say a little -- something with Zequanox and the Evogene collaboration?

So on Zequanox, I didn’t talk much about it, because it’s a non-ag product. But we're still working on it. We have customers who -- we have some power customers who are buying the product and others in the queue. And we are working with both potential open water lake treatment distributors and implied potential distributors continuing to work with companies who can help drive the Zequanox business further. So we are not dedicating R&D resources to it but continues to move along. The second one was Evogene, so on the Evogene collaboration, which was funded by BIRD Foundation, in part. They took, I think it was between 20 to 30 microbes from our collection, and then mind them. Means they looked at those microbes for the proteins that kill insects from those; so those microbes produce proteins that kill insects. They found some, clone them and then we have tested them and found that they have interesting insect cell activity. So we did announced yesterday that those companies would be moving forward some lead candidates; we’re into the bio-pesticide pipeline and them into the protein pipeline, which means they would then put it inside of a plant to make an insecticidal plant when we would have a sprayable bio-pesticide product.

Any ideas for the time line to an actual product?

Well, we can get a product to market in three to four years, because you have to go through EPA timeframe. So it's still a few years away for a product for that.

And of the four products currently being marketed, in ’17, what do you expect the drivers to be? I think they expanded -- all of them expanded in ’16. But which ones will be the primary drivers in ‘17?

We expect to see growth from all of those products in 2017, so all four of the main products. Majestene is because of the high need in the marketplace for nematicides where most of the chemicals have been restricted out. We’re expecting good growth of that product that probably leads the way in terms of growth to rate. But we expect growth from all of the products. And why, because there is more awareness of these products and we've been doing a lot of education about how to use and adopt biologicals, including our own products; and there is concerns about pest resistance to the chemicals; and there is concerns about residues for exported crops; and there is a higher growth of organic production; and most importantly, our products are showing, as I gave some examples, a return on investment to the grower. So they get higher yields and quality and that means money in their pocket.

I think we’re also seeing this greater assessment of biological.

Do you expect more collaborations to be announced this year?

I do. We did say in our objectives that we are continuing to look for collaborations, and we’d like another row crop deal this year.

And just could you give a little more color on the question of the capital needs in the current year?

So we’ll be probably investing in our Michigan facility. I wouldn’t expect that that will be great. We do have $1.4 million of restricted cash that's required to go for capital expenditures at that Michigan plant. And I think we’ll probably be investing a good portion of that in 2017. And in 2018, it's a little too early to tell how much we’ll be investing.

What's your preference when looking at ways to raising the capital?

Well, obviously, we need to do something, but we have access to capital different ways to raise it. And we're confident in our ability to raise the funding. And because of our results, we’re in the best position to attract new capital based on our performance.

So you have some arrangements with some really big players. Is that a possibility as well? I mean, to have some kind of an arrangement with your established collaborators.

Our strategic deals have historically included payments in such. And of course we are always looking for more of those strategic deals.

[Operator Instructions] And everyone, at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.

Thank you very much for your attention today and for listening. We’re really very excited to have completed our strongest quarter and to be expecting to establish a new record for product shipments in the first quarter. We are very grateful for the support and shared vision of our shareholders, and we are dedicated to making sure we show our thanks by creating strong sustainable value. Thank you.

Ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.