Good day and welcome to the Marrone Bio Innovations Fourth Quarter 2019 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Linda Moore, General Counsel.

Good afternoon, everyone and thank you for joining our call. Welcome to the 2019 fourth quarter earnings conference call for Marrone Bio Innovations. On the call today are CEO, Pam Marrone; President and CFO, Jim Boyd; and Chief Commercial Officer, Kevin Hammill. If you would please refer to Slide 2, 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 under the heading, Risk Factors and elsewhere in the company’s annual report on Form 10-K for the year ended 2018 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 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 President and CFO, Jim Boyd. Jim?

Thank you, Linda. And thank you to everyone for joining us on the call. If you would turn to Slide 3, fiscal year 2019 was a high watermark for Marrone Bio. Record revenues of $29.4 million, an increase of 38% were driven by double-digit sales growth in the VENERATE and Regalia product families, and partial year-over-year sales from the Pro Farm and Jet-Ag acquisitions. In the United States, we saw strong growth in both our specialty crop business and our seed treatment businesses. Top crops for 2019 were soybeans, corn, nuts, especially almonds and pistachios, berries led by strawberries, grapes, and our cultivated garden segments. From 2015 to 2019, our compounded annual growth rate for revenue was 31.6% versus single digits for the Ag industry in general, and approximately 15% for biologicals over the same period. Looking forward, we expect to see continued strong growth from our legacy portfolio and also strong growth from our international markets as Pro Farm adds geographic diversification with significant additions to our business in Europe and Latin America. The Pro farm portfolio also gives us multinational access to the new and growing large market segments of bionutrients and biostimulants, which complement our base bioprotection portfolio. Together, we expect even stronger revenue growth in 2020 than we experienced in 2019. In 2019, our seed treatment business grew to be approximately a third of our total net revenues. The combination of Pro Farm and our domestic seed treatment businesses should give our second and third quarters our strongest revenue. In the United States, early forecasts for row crops in 2020 indicate a rebound in corn and soybean acres with acres that went on planted last year coming back into production this year. However, we continue to see Ag retailers and distributors operating under a just-in-time inventory…

Thank you, Jim. I would underscore Jim’s comments that 2019 was a transformational year for Marrone Bio, as we show on Slide 5. In addition to our robust financial performance in 2019, we launched our BioUnite program to expand the base business, successfully completed two compelling acquisitions, demonstrated positive field trials and toxicology test results, in support of our anticipated breakout products, gained key regulatory approvals to support future growth, and completed a carbon footprint study of our products, listening our strong commitment to sustainable agriculture. If you would turn to Slide 6, we launched our BioUnite program in the marketplace in early 2019. But in fact, it is just formalizing an approach we’ve taken from the start. Integrated pest management is central to meeting the global needs for sustainable food production. Biological products are ideal tool in holistic, integrated pest management programs as they give growers new sustainable options within their existing production practices. Through BioUnite, we’re harnessing the power of biology with the performance of chemistry to improve yields, and drive greater returns for the grower, all while improving sustainability. A portion of the additional investment we made in R&D in 2019 was to provide data to prove the value of BioUnite on the farm. For example, in 2019, we experienced to more than 400% increase of Venerate Bioinsecticide environment with our BioUnite strategy. It’s a successful on-farm tool that drove growth in 2019 and as a strategy we’ll continue to expand in 2020 and beyond. Another example of BioUnite in corn, includes test results from our new product Pacesetter, a new formulation of Regalia, tank mixed with a standard chemical fungicide. The tank mixture drove a yield increase of approximately 7 bushels per acre over either product used alone. Likewise, in trials, Pro Farm’s product tank mixed…

Absolutely. [Operator Instructions] We’ll first start with Sameer Joshi from H.C. Wainright. Please go ahead, sir.

Thanks. Good afternoon, Pam and Jim. First off, Pam best of luck for your future and congratulations on the progress that you achieved.

Thank you.

The first question relates to MBI-014 and 015. Are they still on track to generate revenues in 2021 or is that time like changed?

What we’ve – while we were doing some of the additional studies that the EPA called for on 014, we actually developed a better version 015, and we’re contemplating that we might want to resubmit the two of them together and then that will accelerate the approval of 015. So rather than have one out first and then another one delayed we’d actually have the better one sooner. So I don’t think – I don’t see how it will be able to be on the market in ’21, no, so it’ll be pushed but it’ll be better in the longer-term, because the newer version will be faster to market.

But not pushed that far.

Yeah, but not pushed that far and that’s right.

Understood. And as far as the revenues go for this year, have you spelled out how much was organic growth versus from Jet-Ag and Pro Farm?

No, we haven’t. We don’t break out our segments. But you know, we really feel we acquired Pro Farm at the perfect time and it’s really ready to take off and we’re really pleased with the positive impact we’ve seen so far. There are a lot of synergistic opportunities and growth opportunities for the two companies together. So we’re really excited about the future.

Right –

Kevin, do you want to add anything about the – Kevin, do you want to say anything about the revenue projections?

Yeah, no, this is Kevin and thanks, Jim. We’re pretty confident we can build on our 2019 success by adding to that double-digit growth that we saw in Venerate and Regalia in our core crops. A few other things. First of all, we’re launching Stargus fungicide in California, our largest market for this product. Also, we’re having a full year of sales with a recently acquired Jet-Ag. We’re building on that BioUnite concept in almonds. And as Pam talked about, we’re expanding our Pacesetter into new crops like soybeans and corns. There’s another upside, we see in this year is that the recovery of the soybean acres will help us solidify our domestic seeding of business. And in addition, our Pro Farm will help us expand internationally. So overall, we’re looking forward to robust 2020.

Understood. And as we go to Slide 8, where you talk about the forecasted revenue distribution. Can you give us some color on which products we should expect to see in Europe and Africa as it in South America, US and Australia?

Kevin, would you like to talk about that?

Yeah. So right now and if you look at the map right now is, Europe is mainly the Pro Farm products, Europe, Middle East Africa and CIS countries mainly the Pro Farm products and in Latin America, it is mainly Pro Farm with some MBI. And of course, North America’s primarily Marrone Bio products. But as we go forward, we’re seeing the opportunity to implement, for example, all the regions around the world immediately in North America, followed by Latin America and then by Europe that Marrone Bio products in with the Pro Farm products, we see there’s a lot of synergies, we see there’s a lot of complementary nature. So for example, in North America, we’re looking at both the seed treatment opportunity and the foyer opportunity of putting Pro Farm with the MBI products. In Latin America, we’re doing joint testing on – in the 100 field scale demonstration sites with – in seed treatment and some foyer opportunities with MBI and Pro Farm products. In Europe, The Pro Farm products are going to be dominant for the next couple of years as we get our registrations of our core products in that region.

Understood. Thanks for that color. So stepping back, 2019 or 2018 was great 35% - 38% growth. And in addition, you have these new acquisitions. Do you expect similar levels of growth for the next couple of years? Or would there be additional growth some additional acquisitions that may be in the pipeline?

This is Jim. I would expect our revenue growth to actually accelerate in 2020 and 2021 and just keep growing thereafter, for that matter. And as far as M&A activity, I think, you know, a lot of people are coming to us, we see companies every week, a new company every week, looking to partner with us, and I think we would consider companies, but only companies who had, you know, strong revenue growth that would be accretive on an EBITDA basis. And, and I’m sorry, we got a phone going off here. But it’d be accretive on a revenue – earnings basis and being attractive multiples, I’m sorry, we got distracted by somebody’s phone going on.

Right, right. I understand. I think I may have asked this question in the past, but is it more likely that you will buy a product company or would you expect to expand distribution capabilities?

I think that keeping in with what we like companies that have proprietary technology that synergistic with ours and as you said, that can give us some revenue growth of – be accretive and be attractive multiples.

Okay, Kevin, go ahead.

This is Kevin. So Pam just talked about the M&A side of things. From my perspective, we’re looking at adding additional distribution globally. But more specifically, we’re looking at adding distribution in the Midwest of the US for our Pacesetter products and the BioUnite strategy with the Pro Farm and our Pacesetter product. In Latin America, we see rapid expansion there with both Pro Farm and MBI product so we’ll be adding distribution there both the seed and the foyer side of the business. And in then Asia, we’re just started penetrating that a little bit. So we look forward to additional partners in that region of the world.

Understood. I will take rest of my questions offline. Thanks for taking my question.

Thank you.

Thank you for the question. [Operator Instructions] We’ll next go with Ian Gilson from Zacks Investment. Please go ahead.

Good afternoon, ladies and gentlemen –

Hi, Ian.

Hi.

[technical difficulty] on the quarter. Last year, in 2018, we actually had an increase third quarter or the fourth quarter in revenue where I’d say in 2019 [indiscernible] sort of reversed, we dropped classified from some comments that we’ve made. Seed treatments were a significant increase within the product mix and the overall revenue. So what were the drags on revenue, I’d say, in 2019 versus 2018 in the fourth quarter?

Hi, Ian it’s Jim Boyd. Yeah, I think we didn’t have any drags in the fourth quarter over fourth quarter. We just had some products that were flat. We had a very positive increase in our specialty crop business, and everything else performed well. But the mix you know, just the performance of the mix was such that it requires the margins to approve.

And maybe you can comment on the horrible Midwest weather that affected the seed treatment business that Jim was referring to.

Yeah, right. So a couple of things there. Overall, the – as mentioned earlier on, our specialty business side, really good growth, especially with our Regalia and our Majestene/Zelto nematicide. But as you might recall, last summer due to the wet weather, we had probably a 10% to 15% reduction in the soybean acres in the Midwest. This – and if you look at our seed treatment business, one of our key crops is actually soybeans. So what we’re doing is, we are working through some of the inventory over the last few months from that decrease in soybean acres, but the positive note is, I was just looking at some prospective plantings, USDA does not come in till the end of March by looking at some early forecasts that appears the soybean acres are going to rebound significantly this year in 2019 –

2020 –

2020 significantly above 2019 and they might not be back to the 2018 levels, but we see good rebound. So we’re seeing a positive momentum going into the season as the soybean acres and the corn acres rebound from the Midwest with our seed treatment business.

Okay. As we are going forward – I noticed we had a very modest tax expense at the fourth quarter was that due to Pro Farm?

Yes. It’s the acquisition.

Yes.

Okay, okay. As we go through this year and you mentioned that you feel that the middle of the year, second and third quarter was going to show significant gains the year-over-year, is that correct?

What we said was that, the second and third quarter would be our strongest quarters. We actually expect somewhat of a smoothing effect, because if you’ll remember, right, a couple of quarters ago, we talked about at first and fourth quarter being our strongest because of the advent of the seed treatment business. But with Pro Farm being added to that business, their business actually starts a little earlier in the year than ours. And so it makes the second – now shifted into the second and third quarter, but we would expect strong growth in every quarter.

My question really was, there as we look at the feasible trend of revenue in the year, are we going to show basically more or a larger increase in the second and third quarter versus the first and fourth quarter –

In terms of dollar size, yes. So your second and third quarters were – would be bigger than your first and fourth in terms of size.

He’s talking about growth. But that’s true of growth too.

True off of growth, okay. All right.

Okay, okay, yeah and okay, that’s fair enough. I mean you said you showed that with the 400% increase in almonds treatment?

Yeah.

And what led us the second quarter revenue or what is that for then? We’re pretty well over the flowering season or wait for almonds?

Yeah, so that Kevin will answer that so that’s the growth was due to our – largely due to our BioUnite for navel orangeworm that, I believe, and Kevin can talk about the timing.

Yeah. So the bloom season’s really more regarding our Regalia fungicide product. And then from there on in, throughout the spring and summer months, is when you see navel orangeworms come out. And that’s where we – there’s two or three different timings of applications throughout the year. That’s when we use our BioUnite’s strategy of putting Venerate in with the sound of chemistry. So it’s not kind of one month in one quarter. It’s spread out between the seasons of spring to summer, depending on the insect pressure.

Okay, okay. So that vary. So almonds is now a significant product for you when you compare it to corn and soybeans?

Almond is one of our top three crops that we have right now.

Okay, okay. Looking at the hemp market, there’s been a lot of discussion as to whether the market is the legal market as big as many tax authorities had thought, particularly within the State of California, I know down in the southern part of the state that is a lot of the smaller shops have basically gone past. Is that still a near-term product for you or are we looking out beyond ’21, 2022?

Yeah, and we combined hemp cannabis and a greenhouse business all under our portfolio called cultivated garden, and we’ve seen some nice successes with this portfolio last year, a little bit harder to track, because sometimes you could send a product to a customer, they can either put into fruit and vegetables or into cannabis or hemp, but overall the portfolio is growing. Interesting enough, I was reading an article yesterday or a couple of days ago, and that indicated that hemp could be the third largest US crop by revenue in the future. But our experience in California per se is that is going through a lot of turmoil and transition especially, but the harvesting stories and processing challenges that they need to overcome. So we are investing in the area, but we’re not betting the future that where it’s an opportunistic opportunity for us as we go forward.

Okay. So it has not dedicated and channeled towards to that market?

Yeah, we have an individual who manages the overall direction and insight for that business. Yes.

Perfect, great. Thank you very much.

This concludes today’s question-and-answer session. I’d like to give the floor back over to the moderators for our closing or additional remarks.

Thank you again for joining us today and for your interest in Marrone Bio. 2019 was a landmark year for our company. I believe we are uniquely positioned to meet grower demands for new solutions in the Integrated Pest Management and Plant Health Program, 11 new growth underscores the value of our BioUnite approach which harnesses the power of biology, with the performance of chemistry. Our recent strategic acquisition and R&D investments have the potential to greatly expand our opportunity into the biostimulant and bionutrition market. I am proud of the accomplishments of the Marrone Bio team. I firmly believe that Marrone Bio is poised for significant shareholder value creation over the longer-term. Thank you.

This concludes today’s call. Thank you all for your participation. You may now go ahead and disconnect.