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Edited Transcript of MBII.OQ earnings conference call or presentation 9-Nov-20 9:30pm GMT

·38 min read

Q3 2020 Marrone Bio Innovations Inc Earnings Call Davis Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Marrone Bio Innovations Inc earnings conference call or presentation Monday, November 9, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * James B. Boyd Marrone Bio Innovations, Inc. - President & CFO * Kevin Austin Hammill Marrone Bio Innovations, Inc. - Chief Commercial Officer * Kevin R. Helash Marrone Bio Innovations, Inc. - CEO & Director * Linda V. Moore Marrone Bio Innovations, Inc. - Executive VP, Chief Compliance Officer, General Counsel & Secretary ================================================================================ Conference Call Participants ================================================================================ * Amit Dayal H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst * Benjamin David Klieve National Securities Corporation, Research Division - Analyst * Robert Joseph Burleson Canaccord Genuity Corp., Research Division - MD & Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Marrone Bio Innovations Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Linda Moore, General Counsel. Please go ahead, ma'am. -------------------------------------------------------------------------------- Linda V. Moore, Marrone Bio Innovations, Inc. - Executive VP, Chief Compliance Officer, General Counsel & Secretary [2] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for joining our call. Welcome to the 2020 third quarter earnings conference call for Marrone Bio Innovations. On the call today are CEO, Kevin Helash; 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 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 report 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 reports 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? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Linda, and thanks to everyone who is joining us on the call today. If you refer to Slide 3, it's been an exciting first 3 months with Marrone Bio for me. And I'd like to start by recognizing the unwavering commitment of everyone in the company to meeting our customers' needs and contributing to their success. I've seen it demonstrated in every aspect of the business, and our results this quarter and year-to-date reflect this passion. Before we dive into the numbers, I want to revisit 3 commitments we made to you, our shareholders in our last earnings discussion: one, we said we would continue to grow our base business, and we have; two, we said we would closely manage our operating expenses, and we are and will continue to do so; and three, we said we would continue to bring novel, efficacious ag biological products to the market, products that deliver industry-leading value to our shareholders, stakeholders, and we are on track to deliver on this commitment, and we'll go into more detail on all 3 during this call. Overall, I believe the company is on the right path to continue to deliver double-digit revenue growth and become profitable in the near term, which is borne out in our numbers. Third quarter results were in line with our expectations, and we delivered our ninth consecutive quarter of revenue growth. As shown here, revenues increased 27% quarter-over-quarter with gross margins of 56.7%. Looking ahead, our year-to-date results keep us on track to achieve full year revenue growth in the range of our historical levels and margins in line with our annual target in the mid-50% range. The team has delivered on 2 of our immediate growth objectives, and our results are a direct function of their success. First, we expanded our international business with successful launches in Latin America. Our plant health products are now in the hands of our channel partners and ready for application in the current growing season. Second, we're accelerating our presence in the seed treatment market. In North America, product is currently moving into the channel as seed companies begin applying treatments for corn and soybeans. Distributors and growers continue to see the benefit from our biological products for insect and nematode control which is reflected in the demand we witnessed in our third quarter sales. In a few minutes, Kevin Hammill will discuss the outlook for the remainder of the year and into 2021 and the benefits of what we see as a positive shift in our product mix. If you would turn to Slide 4, a key focus area for us has been our R&D pipeline. The team has undertaken an in-depth review to recast a pipeline that delivers the maximum value for all key stakeholders, including our grower customers, our distribution channel partners and our shareholders. As outlined in the blue box on the right side of the time line, we have a robust suite of products we intend to bring to the market between now and 2025. These launches will serve to further strengthen our portfolio and drive the expansion of our business. Slide 5 gives you a closer look at our near-term launches. We've identified 7 projects that have a high probability of reaching the market in 2021 and 2022. All are well understood in our pipeline and commercial portfolio with clear lines of sight into addressable markets, crops and customer value propositions. Taken together, their revenues 5 years from launch could equal half of our revenue in 2019. Slide 6 provides a longer term view. As shown here, we have products in development across the spectrum of ag biologicals. We believe our pipeline uniquely positions Marrone Bio as a clear leader in the research, development and commercialization of products within this rapidly growing sector of agriculture. Finally, Slide 7 takes us one step further, showing the impact of projects that can come to the marketplace through 2030. We are focused on a truly robust set of options across the entire sector and especially in the seed treatment market. In addition, we have significant opportunity to build upon our leadership position in bioprotection products while making further inroads into the major row crops globally. The end result is powerful. We have a refresh pipeline that could add approximately $50 million in incremental revenues in the 2026 time frame and more than $100 million in incremental revenues by 2030. These updates are a different and more detailed view of our pipeline than what we have shown in prior years. As you can see, some priorities have shifted, and we were fortunate to be able to add a number of new projects from our recent acquisitions. We believe this revamped R&D program is highly responsive to customer needs while making the most efficient use of available resources to provide the greatest returns on investment. In summary, if you would turn to Slide 8, the third quarter is a bellwether for what we believe is to come: one, we delivered further diversification of the portfolio and the benefits of that mix effect; two, we expanded geographically with both our current product line and new product offerings; and three, we solidified our obsession with being brilliant at the basics, delivering operationally with spending that is appropriate for our growth while maintaining a tight focus on investing in areas that clearly match customer needs. As Jim will discuss in more detail, we believe we can hold the line on operating expenses while still being able to adequately fund our growth ambitions. Before I ask Jim to discuss our financial results in detail, I would like to thank you. As you know, Jim has announced his intention to retire and is working with us through the transition during the search for his successor. Jim had shepherded the company through its growth as a market leader in the biological space, and his contributions as CFO, leader and mentor are numerous. I speak for myself, the Board and our employees when I to express our gratitude and congratulations. Jim, I'll now turn the call over to you with our thanks. -------------------------------------------------------------------------------- James B. Boyd, Marrone Bio Innovations, Inc. - President & CFO [4] -------------------------------------------------------------------------------- Thank you, Kevin. It has been a privilege to be part of the Marrone Bio, and I look forward to watching the company continue to succeed and grow. Speaking of which, while we anticipated a smaller revenue contribution in the second half of the year as compared to the first half, the team continued to deliver significant positive growth for the third quarter and the year-to-date. As you'll see on Slide 9, third quarter revenues rose 27% to $8.8 million for the quarter and rose 35% to $30.7 million year-to-date. With another quarter of sales still to come, we already have surpassed our full year revenues for 2019. Gross margins increased in the third quarter by 520 basis points to 56.7% and by 400 basis points year-to-date to 58.6%. We are now into our ninth consecutive quarter of revenue growth year-over-year and our eighth consecutive quarter of gross margins above 50%. From both a revenue and margin perspective, we are benefiting from our greater global reach with a more diversified mix of products that deliver on performance, value and sustainability. If you would turn to Slide 10, we're making progress on managing operating expenses relative to growth of our revenues and gross profit. On a comparative basis, there were pluses and minuses in operating expenses for the quarter and the year-to-date. Some are ongoing, keeping in mind that we now have additional operating expenses from the acquisition of Pro Farm. Some items are specific to the year-to-date comparison. These include M&A and litigation expenses in the third quarter of 2019 and the benefit of the PPP loan in the second quarter of 2020. Taking all these into account, we are moving in a positive direction with operating expenses that are flattening quarter-to-quarter and year-to-year. Looking forward, we don't anticipate any major creep in our ongoing operating expenses. We'll speak more specifically to our outlook for 2021 in our year-end earnings call. But as a team, we are targeting to maintain operating expenses in line with 2020 levels plus inflation. We believe this is a level of operating expenses that will support our continued strong growth and that we believe will accelerate our path to profitability by essentially flattening the curve. If you would turn to Slide 11, managing our cash position has been one of the most significant parts of my tenure as CFO. We have worked hard to balance expense management while investing in our product portfolio, pipeline and channels market. We believe we are managing our cash usage to deliver a leading biologicals company with strong growth potential and returns that benefit all of our stakeholders. This quarter, cash from operations was a use of $900,000 as compared with a use of $5.7 million in the third quarter of 2019. Year-to-date also improved with a use of cash of $8.6 million, down 48% as compared with the first 3 quarters of 2019. Our recent warrant restructuring was designed to provide for our growth. The schedule of warrant expiration dates in 2020 and 2021 was carefully planned to anticipate our cash needs. Given that our first half is larger from a revenue perspective than our second half, we have planned for an influx of cash in the fourth quarters of both years. I would add that the warrant restructuring reduced overall dilution and overhang. By the end of 2020, warrants outstanding will be reduced by 79% as compared with the start of the year and by 99% by the end of 2021. We believe the warrant restructuring significantly cleaned up our balance sheet and reduced dilution in a cost-effective manner while providing for the growth that will benefit all shareholders in the future. It, therefore, significantly derisked the company's capital structure. As we approach year-end 2020, I would like to echo Kevin for you. We continue to expect the second half of 2020 will be smaller than the first half. Uncertainties from the COVID-19 pandemic are still a lingering concern, and we are keeping a close watch on expenses as customers need shift with consumer demands. That said, our story is still one of strong growth in a unique, sustainable space in agriculture. We remain on track to significantly outpace the single-digit growth of the conventional ag business as well as the projected mid-teens growth for the biological sector. We had the funding to support our commercial growth as well as support a refocused R&D pipeline. Our prospects are as exciting as our past, and it has been my privilege to be a part of this growth story. I'd like to turn the call over to Kevin Hammill now to give you more color on our commercial outlook. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [5] -------------------------------------------------------------------------------- Thanks, Jim, and thank you for being a strong supporter of the commercial team. We thank you for your contributions and leadership and wish you all the best in retirement. Kevin Helash alluded to some of the factors shaping the ag economy. Let me start by providing a bit more color. First, the entire world continues to deal with the COVID-19 pandemic. We anticipate the need to prepare to operate with this virus, at least to the first half of 2021. While we believe we have managed quite well so far, plans are being made to ensure we have the ability to continue to manufacture and deliver our products to the market in 2021. While it certainly will be a challenge, we do not see a material impact on the growth projections next year as a result of the COVID virus. Second, weather conditions in the Western United States have led to decreased fungicide and insecticide applications. However, I am pleased to say that year-to-date September, we grew our share in insecticides and fungicides. Looking forward, we are forecasting a return to a normal year in 2021, and we'll be well prepared to serve the market. Third, turning to seed treatment. We anticipate that stronger prices for row crops will provide tailwinds for demand of received treatments in all markets. We've been in discussions with all of our customers and have already started moving product to them to prepare for the upcoming planting season. All of this is a backdrop to our plans as we complete the 2020 season and prepare for 2021. The most important trend for our group, however, is the diversification of our portfolio and the corresponding positive mix effect. I'd like to address our diversification in 3 categories: the products we sell, the crops we serve and the geographies we reach. Slide 12 addresses sales by product category. Our historical base has been in the crop protection arena, bio-based products that protect crops against fungus, insects and nematodes. These are either sprayed on the leaves of plants and trees at various points in the growing season or used as a seed or soil-based treatment at planting. This is the heart of our portfolio and one that we continue to grow. The seed and soil treatment side of our business has created a significant change in the product mix. We would expect seed and soil treatment to grow to 40% to 45% of our portfolio over the next 3 years. Two treatments provide insurance for growers as they proactively respond to stresses that are present at the time of planting based on experience in known growing conditions. Performance usage rates, price and compatibility all come into the buying decision. All else being equal, we believe distributors, key companies and growers will opt for biological treatments. New partnerships, like the one we announced last quarter with Vive will allow us to expand our BioUnite offerings into the plant health market. Our acquisition of Pro Farm also accelerated expansion into plant health, and we are forecasting that this segment will make up 14% of our sales in 2023. As we mentioned in our second quarter call, we are starting our commercial launch of our new Pacesetter product for plant health and are initially positioning it for use in corn and soybeans. On the term, Pacesetter potentially could be combined with Pro Farm's emerging foliar product for plant health. The near-term pipeline that Kevin Helash shared earlier underscores the value that crop health products have in our portfolio. Half of our products slated to be launched in 2021 or 2022 are in this category. This shift in mix plays itself out when you segment our sales by crop as shown on Slide 13. Again, our specialty crops have been the foundation of our sales and it is seed and soil treatments that drive our growth in the major row crops. Today, the largest row crop market for us is soybeans. But our pipeline shows continued expansion in corn, wheat and other oilseeds. Finally, we're seeing the benefits of the relationships we've built with partners in key growing regions outside the United States. If you would refer to Slide 14, we are becoming a far less U.S.-centric company with potential to expand significantly in the large growing regions in Latin America and the European Union. In 2023, we expect our sales to be roughly equal between North America and the rest of the world. In summary, we have created the platform for the next wave and the continued evolution of the company. Our results will vary quarter-to-quarter, but the full year results will be the same. We expect to outpace our industry peers in terms of revenue growth and to benefit from the types of margins associated with products that deliver exceptional customer value. Success requires the right product, performance price and partners, plus a heavy dose of patience to build the presence. We are delivering on our commitments to expand internationally, diversify into row crops and tap new market segments in plant health and seed and soil treatment. We can never say our work is done, but we are confident that we have the building blocks and the pipeline in place to succeed. At this point, we'd like to turn the call over to the operator to begin our Q&A session. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And we'll take our first question today from Ben Klieve with National Securities. -------------------------------------------------------------------------------- Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [2] -------------------------------------------------------------------------------- So first, I want to turn to the R&D pipeline that you laid out on Slide 5 and 6. I don't see MBI-014 on here. Am I missing something or was MBI given -- was that product given a name that I'm not aware of? Where is that in the time line here? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Ben, Kevin Helash here. Yes, Ben. So it's a great question. And as I mentioned in my opening remarks, we've gone back to the drawing board in terms of our R&D pipeline and really taking a hard look at what products should we be focusing on to bring to the market to provide the highest value to us and our shareholders. With specifically regard to 014, we have elected to move on to 015, which is a much more, I would say, what we would call generation-2 product in that category. So you see it there as 015, and we're going to go straight to what we think is the clear winner in this category for us, and it's going to take us a bit more time to bring it to market. Kevin Hammill, do you have anything to add to my comments? -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [4] -------------------------------------------------------------------------------- No, I agree as that one of the things we're fortunate to have is with Pro Farm's acquisition to add in their pipeline, so we could we reevaluate, refresh and reset our pipeline, and we're very excited about the pipeline. And we're actually in good shape to launch our near-term products in '21, '22. And but specifically to 014, 015, as Kevin mentioned, we transitioned to 015. And I believe we mentioned this in 2 to 3 earnings call prior. And with the new launch or focus on 015, as you can expect, it's going to take a little bit time to optimize the final formulation, field testing in the marketplace and we get the final registration of the product. So it's still in there. We're still excited about it, and we're very focused on getting this product to market. -------------------------------------------------------------------------------- Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [5] -------------------------------------------------------------------------------- Perfect. And I guess 2 clarifying questions here. Remind me that the distinction from in 014 to 015, wasn't one of them targeted for organic and the other conventional, if I remember correctly? And then also on Slide 6, the 0 launch in 2027 is annotated with the C. What does that mean? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [6] -------------------------------------------------------------------------------- Yes. Kevin, can you can continue, please. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [7] -------------------------------------------------------------------------------- Okay. No problem. Yes, we did have a 014, but the 015 is the product we'll be going forward with and this product is going to be both used in organic and conventional. We just designated the 015 to make sure that we have the conventional logo in there with this product, the C stands for conventional but this product will also be going to organic. So we have transitioned all the way from 014 to completely to the 015. -------------------------------------------------------------------------------- Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [8] -------------------------------------------------------------------------------- Got it. Okay. That's helpful. Perfect. Now turning to the quarter. You talked about kind of the timing of the Pro Farm acquisition with regards to OpEx, but I didn't catch a revenue number. So for -- can you break down the revenue contribution that was -- that we saw in the third quarter that was derived from the acquisition versus what was organic in nature? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [9] -------------------------------------------------------------------------------- Yes, Ben, it's Kevin Helash here again. So Ben, we don't segment out Pro Farm or our products for that matter. But what I can tell you, and I'll ask Jim to chime in here in a second, is that we remain extremely happy with our Pro Farm acquisition. It has contributed a material amount to the company in the relatively short time that it's been here. And we foresee their pipeline continue to add value for us moving forward. But in terms of a bit more color on Pro Farm, I'll hand it over to Jim. -------------------------------------------------------------------------------- James B. Boyd, Marrone Bio Innovations, Inc. - President & CFO [10] -------------------------------------------------------------------------------- Yes. Well, I'll just echo what you said, Kevin, but add that Pro Farm has contributed in every quarter. It is contributing now as their seed treatments are rolling out for Europe. And we think long term that they'll be a very significant contributor to the company. I might add that we expect them to be accretive on a net earnings and a cash flow basis for the year. -------------------------------------------------------------------------------- Benjamin David Klieve, National Securities Corporation, Research Division - Analyst [11] -------------------------------------------------------------------------------- Got it. Okay. And last one for me, and I'll jump back in queue here. But I wonder if you could touch base on the press release that came out, I don't know, I guess, a couple of months ago now, on the distribution agreement with Rizobacter. Can you just kind of talk a bit about kind of the structure of this agreement and talk about also timing? Is this an agreement that's pretty well developed such that you're expecting revenues this growing season in South America? Or do you need a couple of years of field testing and educating the sales force, things of that nature that would make this not really be material here for a couple of years? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [12] -------------------------------------------------------------------------------- Yes, Ben, thanks. It's Kevin Helash again. So great question, and I'm glad you brought it up. We are very excited about our new relationship with Rizobacter. And the great part about it is it expands our footprint into the southern cone of Latin America. And we do expect it to start generating more -- immediately, basically. But Kevin Hammill was instrumental in getting that deal across for us with his team, and I'll let him expand on that further. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [13] -------------------------------------------------------------------------------- Yes. I just want to echo what Kevin Helash said that when we bought Pro Farm, we saw the attractiveness of expanding in Latin America and expanding into row crops, and this agreement with the Rizobacter achieves both of those goals. And what it is, it's that the foliar plant health use of the Pro Farm product. And what it does is helping control abiotic stress in crops like soybeans. The main region's Argentina, Uruguay, Paraguay and Bolivia. And what the grower shows -- see at the end is at a higher yield by helping out control some of this abiotic stress. In terms of your direct question, yes, we're seeing revenues in both third quarter and fourth quarter as a result of this agreement. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Next, we'll hear from Bobby Burleson with Canaccord. -------------------------------------------------------------------------------- Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [15] -------------------------------------------------------------------------------- So just curious, you've touched on diversification of products, especially as we look out a few years, curious with the row crop traction, what kind of synergies do you see across the portfolio? Are there opportunities to really boost what you're doing in row crops outside of the seed and soil health? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Yes. Bobby, it's Kevin Helash. So that is one of the great parts about our portfolio is that we do see lots of over -- opportunities to combine. And as Kevin Hammill can articulate, we have 3 ways that we're looking at the market, whether it's BioUnite, BIOFOCUS and TerraConnect. So yes, we -- we're just getting started in our view in terms of flushing out all the opportunities of permutations and combinations of our products not only with themselves, but with other products that are in the market. Kevin, I'll pass it over to you. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [17] -------------------------------------------------------------------------------- Yes. So as I mentioned earlier, the acquisition of Pro Farm just makes our tech -- our pipelines that much more robust. And we definitely do see synergies in a couple of different ways. One is the sales synergies in terms of the sales forces and the field development people in both companies. But specifically to your question, Bobby, on product synergies, we actually see synergies in all segments of the business. We currently have in development one of our pipeline products as a combination of one of our bioprotection products with a crop health product from Pro Farm that we see is able to go into the seed treatment business. And then the foliar side of things, we talked about quite a bit about a product called Pacesetter, but we did actually a lot of testing this summer of adding UBP crop health product into our Pacesetter product. And what we've seen is another step-wise change from added Pacesetter to the growers fungicide, and by adding UBP to the to Pacesetter to Stargus Fungicide, we continue to see step-wise changes as we put these products together. So all in all, we see a lot of synergies not only from the sales force, but also from the product pipeline by combining these products together and go to market -- as we go to market. -------------------------------------------------------------------------------- Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [18] -------------------------------------------------------------------------------- Okay, great. That's helpful. Just another one for me. You guys have laid out pretty detailed product pipeline in terms of launch schedule, et cetera. I'm just wondering, are there any metrics that you can flesh out a little bit in terms of how you came up with the expected revenue contribution? And what are you doing there to try to be conservative? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [19] -------------------------------------------------------------------------------- Bobby, Kevin Helash here again. So that was one of the first things that we dug into when I came on board in August. And it's basically taken us until now to go through all the work product by product, looking at every aspect of what it would take to bring it to market from the bench, to field trials, to regulatory, customer acceptance, price point, formulation, you name it. And then we've taken every single step along the way and risk-adjusted it. So it's a long and lengthy process with many, many, many hours of work that's gone into it. And I'd certainly like to give a big shout out to the team for diving into it. But I think what we have now is a very realistic pipeline. We're very focused now in terms of what we're going to work on and I'd say, equally important, what we're going to put on the shelf for now. And we believe we've come up with a revenue stream that is deliverable. We're all committed to putting our hand in the fire and going to work to make it happen. So Kevin, you were leading the pipeline from the commercial side with your team. What else can you add? -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [20] -------------------------------------------------------------------------------- Yes. And I agree with you 100%, Kevin, as that when we looked over the pipeline, as I said, we are so fortunate to have such a great pipeline, a very robust pipeline and opportunity to combine our product synergistically. But when we look at the risk factor, we did a couple of things. First of all, Kevin Helash has mentioned this, as that we risk-adjusted it. So we went across the whole product line and looked at it from a risk, from a regulatory, from a product development side of things and also from a commercial launch side of things, and we risk-adjusted that to come up with these forecast in terms of sales and by year. The other thing we did is with that heavy risk was, can we launch these? So we're fortunate that it's for those products that we're planning to launch over the next 2 to 3 years, we really have done the heavy lifting so far. So we're really ready for the launch of these new products. And how we propose to that is that we have -- fortune to have an experienced team in place that really understands the market and has helped us to articulate this opportunities based in different regions in the world. We have done extensive fuel testing to ensure the product reforms delivers on our commitment and also allows our customers to experience and work with the products prior to sale. And finally, we have the distribution in place for those products that have been established. For 6 of the 7 products, we have the distribution in place, and we are active in discussions for the remaining offer in their near-term pipeline with a partner. So overall, we risk-adjusted the sales to adjust for some risks from a regulatory development and sales, and we have taken precautions to make sure that the heavy lifting is done before we launch our near-term pipeline. -------------------------------------------------------------------------------- Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [21] -------------------------------------------------------------------------------- Great. That's very helpful. And if I could just squeeze one more in. I'm wondering, just with Jim on the verge of retiring here. What's the effect on the ability to deal with pushback on OpEx reduction? There's always some kind of pushback in certain areas. Everybody's project is the most important, and Jim has institutional memory and domain expertise to really be able to kind of decipher all that. Is there any -- Jim, how deep is your bench in terms of being able to deal with that type of complexity when you're pursuing -- when the firm is pursuing additional OpEx controls beyond your tenure? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [22] -------------------------------------------------------------------------------- Bobby, it's Kevin Helash again. So really good question. So let me make 2 comments before I hand it over to Jim. First of all, Jim has been professional and gracious enough to commit to staying with us until we find his successor. That has allowed us to really take our time to conduct an extensive and thorough search. And I can tell you that we're being very picky in terms of looking for Jim's successor. So he's not going anywhere -- well, until we find his replacement. So thank you, Jim, for that. And then I would say also in terms of our OpEx that the entire team built our budget. So this was not a Kevin Helash or Jim mandate, thou shall be. I mean we really looked at our business and challenged ourselves to say what do we need to run it effectively and efficiently. And we all collectively came up with the basis of 2020 as our run rate. We think that is a sufficient amount of resources to us to do what we need to do to fund the company, of course, with inflation. Jim, in terms of your team and the bench, I'll hand that over to you in addition to any other comments you want to make. -------------------------------------------------------------------------------- James B. Boyd, Marrone Bio Innovations, Inc. - President & CFO [23] -------------------------------------------------------------------------------- Yes. Thanks, Kevin. I guess I'd like to say that, as Kevin indicated, we've got a cost control and expense control as part of the culture of the company. We've got some really hard times, and we've always been stretched for cash, yet facing a tremendous opportunity. So what to invest in and what to manage in terms of our operating expenses has always been sort of central to the company. And as Kevin said, it's a company-wide effort. We've got lots of good people throughout the company, and they're all very conscious of expense management and wanting to succeed and wanting to launch as many projects -- products as we can. With regard to the bench, I'm so fortunate to have so many good people, so many direct reports to me. I won't embarrass by naming their names, but the Corporate Controller, our Head of Planning and Budgeting, the Head of Supply Chain, our Manufacturing Manager out in Michigan, they're all really solid, very capable professionals. And I honestly think that several of them could be the CFO. So I think we're in really good hands. It's one of the reasons that went into my retirement decision that I felt the company was fundamentally strong in almost every aspect of its operations now and was very capable, and it was time for me to spend some time with my family. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- (Operator Instructions) We now hear from Amit Dayal with H.C. Wainwright. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [25] -------------------------------------------------------------------------------- 4Q is typically sequentially lower for you guys. Any chance you'll buck that trend this year? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [26] -------------------------------------------------------------------------------- Sorry. I mean it's Kevin Helash here. Can you repeat your question, please? -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [27] -------------------------------------------------------------------------------- Yes. So the fourth quarter is typically sequentially lower for you. Any chance you may buck of that trend this year? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [28] -------------------------------------------------------------------------------- Yes. Got it. Thank you. So in terms of our outlook for the fourth quarter, I'll make a few comments and then hand it over to Jim. So in terms of how we see the second half of the year, it has typically been the smaller half revenue-wise. We continue to see that going forward. I would say that as we're looking to Q3, Q4 together, if you think about what our historical split has been between 1H, 2H, we don't see any move off of that trend this year and probably not going forward for some time. We are definitely looking to expand in the southern hemisphere, which will provide some more weight to our second half. But at least for 2020 and 2021, I would expect and we do expect to see similar splits between first half and second half. Jim? -------------------------------------------------------------------------------- James B. Boyd, Marrone Bio Innovations, Inc. - President & CFO [29] -------------------------------------------------------------------------------- Yes. I guess I'd add -- as Kevin said, the first half is stronger for us, always has been. This year, we expect the first half, second half to be sort of in the same race as it was in 2019. However, there has been an impact of COVID, although we've been very successful in the face of it. And so I think fourth quarter is going to be interesting. I think we're going to end the year very strongly. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [30] -------------------------------------------------------------------------------- And if you want, I can just add a little color into the marketplace, what's happening there, if you wish. -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [31] -------------------------------------------------------------------------------- Yes, Kevin, I think -- cool -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [32] -------------------------------------------------------------------------------- Yes. And some, what I kind of see, when I look at the fourth quarter is that in the U.S. domestic specialty market, I see us -- the crops have been harvested in most of the U.S. and now we just have some applications starting up in like the southeast, southwest of where they were starting to plant some of their crops for the seasonality. In Latin America, we're seeing some of our foliar applications for crops that have been already planted a month or 2 ago. But our core market is preparing for the U.S. seed treatment market, where we're ramping up corn seed that was harvested and is being treated now for planting in 2021. So as we say, we're kind of winding down the -- most of the specialty business, with exception for southeast and southwest in the U.S., finishing up some foliar applications in Latin America but really certain to build on our seed treatment business in the U.S. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [33] -------------------------------------------------------------------------------- I really appreciate it. Just maybe one more from me. With respect to sort of the refurbished pipeline, if you will, is there anything in that pipeline that could cannibalize current products? -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [34] -------------------------------------------------------------------------------- I mean it's Kevin again, Kevin Helash. So the way we think about our entire portfolio is evolving, let's say. So as we are moving from what I call or we call generation 1 to generation 2, we see opportunities to expand our footprint, both with the customers that we have, on the crops that we're currently on, moving into new crops, moving to new geographies. So when we show our pipeline revenue as we have today, that is all incremental valuation to the company. We certainly have taken into account, for example, if we create a generation-2 product that, yes, it will probably phase out a generation 1. But what you've seen today is the net effect of that. So the short answer is, yes, to some degree. But the good news is the 1 plus 1, generation 1 plus generation 2 is bigger than the generation 1 standalone if that makes sense. Kevin, do you have... -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [35] -------------------------------------------------------------------------------- Yes. So Kevin, I agree with you. And kind of how I'm looking at the pipeline, I look at a couple of different ways. The one that we outlined on Slide 6, but there's also another one that you alluded to me was breakdown of -- I break it down by second generation of products, step-wise changes by their BioUnite program and new novel modes of action. So if you look at that second generation of products, this is both for the Crop protection and the crop health part of our portfolio. So both from the legacy products of Marrone and Pro Farm, we have second- and third-generation products there that will make us even more competitive in the marketplace from reduced usage rates, increased performance, lower cost of goods. So we're hoping this second generation of products is going to drive higher sales and margins. And that's as Kevin Helash mentioned, this is all incremental to our current pipeline. Then the second part of how I look at the pipeline is these step-wise changes in BioUnite program. So that's introducing product combination of our biology with chemistry. And there's a couple of different great options there. We're looking at as one of them is where we're providing, I mentioned this earlier on, we're mixing our chemistry -- sorry, our biology with Pro Farm's biology and mixing that with chemistry and seed treatment. And we expect significant positive results from this BioUnite program. And the third part of our pipeline is those new novel modes of action like the herbicide that we talked about earlier on. So overall, yes, there will be some second- and third-generation products, but we believe that's going to help us increase our sales and margins as we go forward. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [36] -------------------------------------------------------------------------------- Yes. Sounds like with this new generation of offerings, the potential for customer stickiness also goes up. -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [37] -------------------------------------------------------------------------------- Yes. Kevin, do you want to comment there? -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [38] -------------------------------------------------------------------------------- Sorry. My reception was a little bit off there. Could you just repeat that question for me, please? -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [39] -------------------------------------------------------------------------------- I was thinking whether with the second-generation product, second- and third-generation products, the customer stickiness attributes of your products also increase. -------------------------------------------------------------------------------- Kevin Austin Hammill, Marrone Bio Innovations, Inc. - Chief Commercial Officer [40] -------------------------------------------------------------------------------- Yes. We -- so the second-generation of the products could be anywhere from lower usage rates so they perform better or having a better new components there so they get increased yield or better performance efficacy on a fungus or a pest. So there's various different benefits built into these second-generation products. In addition to -- we believe that a lot of them can get lower cost of goods that are better than 2. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- And that will conclude today's question-and-answer session. I will now turn the conference over to Kevin Helash for any additional or closing remarks. -------------------------------------------------------------------------------- Kevin R. Helash, Marrone Bio Innovations, Inc. - CEO & Director [42] -------------------------------------------------------------------------------- Thank you, operator. And thank you to everyone for your time and interest today. We provided a lot of new information on how we view the business from the expansion of our commercial port -- opportunities to the focus of our R&D pipeline. And from the management of our operating expenses to our ability to fund our operations going forward, all are significant positives in the continued evolution and growth of the company. We'll be providing some expanded investor information on our website over the next few weeks, and I invite you to look for additional investor information on the company. We expect to deliver on our growth commitments while being brilliant at the basics, and we'll take both to reach our goals to become profitable and further reward our shareholders. Thank you again for your time and attention today, and we look forward to speaking with you in the near future. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- That will conclude today's conference. Thank you for your participation. You may now disconnect.