Good day and welcome to the Marrone Bio Innovations' Third Quarter 2017 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. Please go ahead.

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 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 reports filed by the company with the Securities and Exchange Commission, including under the heading Risk Factors and elsewhere in the company's Annual Report on Form 10-K for the 2016 fiscal year and the company's Form 10-Q to be filed for the third quarter of 2017 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. 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 website. Any guidance that management may offer on 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 hold a question-and-answer session. I will now turn the call over to our Founder and 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 President and Chief Financial Officer; and as you just heard Linda Moore, our General Counsel. We experienced several noteworthy catalysts in the third quarter of 2017, such as, distribution agreements for Africa, exceptional field data in the largest global pesticide market Brazil as well as several other countries and the U.S., the completion of our Grandevo WDG granulation line, receiving EPA registration for MBI-110 product Stargus which is the seven products we've commercialized in eleven years, an unprecedented accomplishment in the Ag industry. One of our products was launched successfully, via our strategic partner Albaugh into the row crop seed treated market. Albaugh has announced that their BIOST treatment outperform the commercial standards and increased yields on corn and soybeans. In addition our own bio-stat feed treatment showed increased yields in the second year of field trials in soybeans and corn. We view all of these as major accomplishments. Despite these major events, unfavorable weather conditions reduced the number of expected sprays in several of our key markets. Historically the third quarter is the lowest quarter of the year in terms of sales and is the most unpredictable. This year it was no different as hurricanes Irma and Maria significantly impacted our sales in both Florida and Puerto Rico. Fortunately our portfolio approach to product development and marketing is designed to diversify our revenue base and reduce the impact of any one variable on the success of the company as a whole. This product portfolio approach allowed us to achieve year-to-date growth well above the industry average. We believe we are well positioned in the market and have made significant progress in penetrating the U.S. and abroad. As I noted…

Thank you, Pam. Good afternoon, everyone. I would like to walk you through our third quarter results. Our year-to-date GAAP revenues totaled $14.8 million, up 31% compared to the same nine-month period in 2016. We reported product shipments year-to-date of $15.2 million, up 36% compared to $11.2 million for the same nine-month period in the prior year. GAAP revenues for the third quarter of 2017 increased 16% to $4.2 million compared to $3.6 million in the third quarter of 2016. Product shipments for the third quarter were $3.1 million, which were flat with the third quarter of last year. Our revenues and product shipments in the third quarter were negatively impacted by hurricane weather conditions in key growing regions, which significantly delay planning our destroyed targeted across. Revenue growth in the third quarter was led by Venerate. Although revenues and product shipments were affected by the whether this quarter, we believe the company wide execution in our third quarter was strong. And we believe we are well-positioned for on growing growth opportunities. As a reminder, our GAAP revenue recognition policy requires us to defer some revenue to certain customers on the sell-through revenue recognition method. We do not grant any return rights to these customers and deferred revenues are recognized over time. Cash is collected under normal terms, exactly the same as with our sell-in customers, and is not affected by this revenue recognition methodology. As a result of this, we believe that product shipments are helpful measures for investors to understand operating results and track product adoptions. The company is in the process of access the impact on both revenues and deferred revenues related to the implementation of the new revenue accounting standards, commonly refer to as ASC-606 which take effect January 1, 2018. Now returning to GAAP reporting.…

Thanks, Jim. We've made great progress in key strategic goals and operations. We have a proven history of strong product shipment growth through eight quarters, our products have demonstrated exceptional results in both our U.S. and international field trials against key pest and diseases as I described previously. We continue to focus on those products in our pipeline with the best near-term commercial opportunities, and our R&D expenses continue to reflect a lean, but capable organizational structure and a highly targeted R&D approach that is focused on supporting sales and manufacturing and increasing gross margins through process improvements and also a small percentage on new product development. Since the fourth quarter of 2014 we had a goal to introduce four new products to the markets in the next three years and we remain on track to do so. We introduced one in 2016 and two in 2017 and also registered and demoed with customers a fourth product MBI-601 or Ennoble. We've done this all while keeping R&D flat for a little company it is truly impressive to have a portfolio of seven highly effective products in 11 years. Vertical integration continues to be a key focus as ours volumes increased. In 2012 we've purchased our own manufacturing facility and have since brought several products in house such as Regalia, Grendevo and Zequanox. We expect to bring Venerate and Majestene production in house in the future. Key benefits include controlled intellectual property and flexible and faster scale up times, as well as better margins, cost controls and return on investments. Our Michigan facility has rapidly scaled with demand and has ample acreage for drawing and warehousing. The Grendevo granulations line is finished and the packaging line has been ordered. In summary, we are achieving short-term goals while building an organization that is positioned for continued success and growth. I'm extremely proud of our entire team for their hard work and dedication we remain keenly focused on execution to build shareholder value. With that, I'd now like to open the call for questions. Operator?

Thank you. [Operator Instructions] And we'll take our first question Sameer Joshi with H.C. Wainwright. Please go ahead.

Good afternoon. Good, how are you?

Good.

So in terms of the weather impact, are you seeing any residual effect of that going into the fourth quarter?

We are assessing that right now. They had to replant some tomatoes and peppers and actually pick up the plants that were already there and try to restick them and see if they could save them. And then of course the citrus crop was really messed up and then all the ag in Puerto Rico. So we're assessing that now sprays are starting again. So we'll see.

Okay.

Sometimes when there is fewer crops out there they spray more because the value of the crop is higher. So that's often -- that maybe the case.

Okay. The reason for that question is should we see like sales -- the loss of sale recuperate only in the next year cycle or we should see some recovery or push out into fourth quarter from the third quarter?

I think you'll see push out?

No, you won't see push out, I mean, in the third quarter we're lost sales, but we're operating Q4 as if it's going to be a somewhat normal vegetable and season, citrus probably not, because a lot of the crop is on the ground, but certainly on the vegetable side and fruits and things like blueberries.

Okay. Just a clarification on the bio-fumigant MBI-601, has that been approved and launched or is it that you are under trials at various sites?

We didn't have the resources to launch everything at the same time. So it is approved by the EPA, it's pending California approval. And we're sort -- we did Stargus first, and then what we're doing is putting in Ennoble in the hands of key customers that would be the first target early adopters that we normally go to when we place the product in the market. So that's the sequence, so that is the next one that we will be launching, but it's always on -- our products we always launch on a targeted basis. So the key early adopter growers and then launch bigger the next cycle.

Got it, understood. You mentioned Stargus and that's great. So what is the next steps for that, and what are the target markets and when do you see meaningful commercial revenues from Stargus as well as amplitude?

So we do expect meaningful revenues -- some meaningful revenues of Stargus next year. Because we're still late in the year got the EPA registration October 27th. What happens is you then apply for state approvals and those are generally a rubber stamp but you still got to send them the check. So by the time we have the state approvals we’ll have still some season left and shipped in this year in the Southeast. So, I mean, there is not a season for this year so next year we do think that there is an opportunity for some decent revenue and where well we have downy mildew on grapes in an East Coast market powdery mildew is a West Coast market and this is a downy mildew product. And then leafy greens, there is always a need for more leafy green products out here in Western California Arizona. And then Southeast, cucumbers and squash the curb at downy mildew big problem. And great in the West botrytis and strawberries on botrytis gray mold. And then for -- and then things like snap beans for white molds. Now for amplitude we don't have as much data, we have some good data. but it's not as broad of a dataset as we do on Stargus for specialty crops. But a data for amplitude which is the raw crop version allowed us certainly to submit to Mexico and Canada with soybeans on it. And the amplitude is already approved by the EPA it’s just that we're not launching that brand until the season next year. And we'd be focusing on white mold on soybeans. That is an emerging disease. Growers tell me they're seeing more and more of that. And so I think we've got a real strong product here for that.

And just a clarification, both of this is the same formulation. Is the application method the same?

It is the same formulation, but the label and the rates for use are different. So there is a -- you use a different number of quotes in for things like white molds versus the specialty crops. Just like the Regalia Rx. Regalia Rx use the different rate.

Okay. So this next question is sort of a longish question, but it covers the next 12 to 15 month in terms of product launches, I know you mentioned four new product launches over the next three years, but -- or the next 12 to15 months how does that look. And then part B of that question is how does your utilization of current capacity and future capacity expansion relate to new product launches and expansion of markets?

Okay. So we're -- so we said after the end of 2015 we said we were going to launch four new products in next three years. So we're done with the three of the four that's Haven – Majestene, Haven and Stargus, I mean, and shortly launching Stargus. So the next one up would be Ennoble that would make number four. And then after that would be our herbicide MBI-014 but that depends on when we launch -- when we get EPA that we have to submit it and that's near-term we're just finishing the tox studies, already done with their stuff. And then that will be the next one up. We have other things in development that are I said brand refresh and value creators to existing products for example Regalia Premixes with the [indiscernible] chemistry and Regalia and Stargus premixes to a create an even better product and brand segmentation in the market. And those are already completed by R&D. We haven’t set a target launched for that. We also have some seed treatment versions that would be near-term launch as well. We're looking at the go to market strategy for our bio-SST, bio stack seed treatment because second year in a raw and we did semi commercial trials this year, which are looking very good. So we're figuring out how to go to market and launch that in 2018 may be the first growers will be the organic ones who have the biggest need while we are looking for partners for the larger markets any way. Now, the second part of your question was, how much of the new products contributing to the growth.

Yes, contributing to the growth and also your manufacturing capacity versus utilization?

Okay. So, Stargus cannot be made in Michigan at this time because we don't have a setup for spore formers which are so Stargus has bacillus which has resting spores that are hard to get rid of. And so we don't want to kept them in the plant with our other products which don't make spores and then you’ll never -- every time you make a Grandevo, you’ll get some spores bacillus over running it, that I haven’t had a very much experience with that. So, we're going to continue this whole manufacturer Stargus for the time being and then same with Ennoble, we're contracting that, it's a completely different kind of manufacturing made in solid culture, which we don't have in Michigan. So, the near-term with Michigan would be bringing Haven -- we are contract manufacturer we could bring Haven heavy and also we have been working on bringing Majestene and Venerate in through some adjustment to some filtration on some tanks, which is not too expensive in the near-term.

And we're going to be increasing Regalia production.

Yes, we're buying a bitter tank because Regalia, we need it, yes.

I know I said, my previous question was going to be last, just a curious question, are you seeing sequential growth from the Cannabis/hydroponic market or is it lumpy right now?

We are seeing sequential growth especially since the largest hydroponic distributor took in product, this actually it would be fourth quarter right. We are seeing sequential growth, there was a little fires burning in some of the crop in California for the medical crop. And there are estimates of 25% burned, but we don't know if that's going to affect anything right now. Certainly California is gearing up for January 1st recreational and California has partnered food and agricultural has hired 100 people to put in place “Cadillac Regulations that will regulate recreationally use.” So, that's why we're doing the small pack sizes because that's going to hit -- we think that's going to have an effect and hit pretty quickly.

But we continue to see good...

Yes, yes.

Got it. Okay. Thanks a lot for taking my question.

Thank you, Sameer.

[Operator Instructions] We'll take our next question from Laurence Alexander from Jefferies.

Hi, this is Nick Patel [ph] on for Laurence. Thank you for taking my call.

Hi, Laurence. Who is on?

Nick [indiscernible].

Hi, okay.

Hi. So, I guess taking a look at over the next three to five years, what areas do you see you having the most opportunity for growth?

International is a big driver of growth, it's gated by regulatory but the growth of biological is actually higher on a growth rate basis outside the United States simply because the market is less penetrated then in the U.S. which has the best regulatory in the most mature market here. So, huge need internationally, Brazil will be -- we think is going to be a significant growth driver. Eventually China, I mean, if you look at the numbers of what our distributor partners in China telling us with the middle class wanting the growing middle class and more wealthier consumer, demanding safer food these types of products are going to be highly desired but it's not yet pent the biological market is very, very early in China but it is a growth driver over the long-term. Row crops will be growth driver for us over the long-term. We focused on specialty crops and then now -- and then with selected partners on row crops but now like we have Grandevo and Venerate could be used in for row we have the data irrefutable data for controlling nematodes in furrow, in row crops now we have amplitude for white mold in canola and soybeans, seed treatment. So we have really I would say one the best portfolios for row crops already registered products. And so we're really focusing on our go to market strategy of how to drive that growth in the row crops. We view selected partners and now we may go through that, but also some targeted grower activities. Also then the third bucket of growth is of course new products. We do see that as a growth driver especially when 014 gets to the market for glyphosate-resistant palmer pigweed and other pigweeds and lambsquarters and such. And Stargus, Stargus as I said in the script, we think is a winner the data is just coming back so strong. And it fills the need in the market. I mean, the whole point of what we do is finding an unmet need in the market and then using our R&D either in license discovery or discovered ourselves and then get it to market to fill that need. And Stargus is a great target example of how we identified that there were fewer biological and chemical products in the downy mildew and white mold market and botrytis market and now we have that product.

Great, thank you very much.

Yes.

And it appears there are no further questions. I'd like to turn the conference back over to Pam for any additional or closing remarks.

Thank you. In closing, I want to thank each of you for joining us today. We will be conducting several road shows and attending conferences on both Coasts. So if you're interested in the meeting, please contact management or our IR firm as we group to arrange. We look forward to updating you on our progress as we move forward with a number of key initiatives to build shareholder value over the long-term. Thank you.

And that concludes today's presentation. We thank you all for your participation. And you may now disconnect.