Q2 2020 Marrone Bio Innovations Inc Earnings Call
Ladies and gentlemen, thank you.
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Second quarter 2020 called starting from <unk>.
[music].
Good day, ladies and gentlemen have welcomed.
Second quarter 20.
Oh.
Today's conference is being recorded at this time I'd like to turn the conference.
<unk> General counsel.
Good afternoon, everyone and thank you for joining our call welcome to the Twentytwenty second quarter earnings conference call from our own bio innovation.
On the call today, our CEO, Kevin you last CFO, Jim Boyd and Chief Commercial Officer, Kevin Campbell.
If you would please refer to slide two I'd like to remind you that this conference call may contain statements regarding management's expectations hopes beliefs intentions or strategies regarding the future, it's always projections forecasts or other characterizations of future events or circumstances.
Such statements are based on managements current expectations and beliefs concerning future developments and the potential effects on the company.
Yeah can be no assurance that future developments affecting the company will be though was 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 the state.
Important factors that could cause differences are contained to the reports filed by the company with the Securities Exchange Commission.
Including under the heading risk factors and elsewhere in the Companys annual report on form 10-K for the year ended 2019, and the quarterly report on form 10-Q sort of fiscal quarter ended June Thirtyth twentytwenty.
And under the heading Marrone bio innovations forward looking statements in our earnings release posted on the company's website.
Should one or more these risks or uncertainties materialize or should any of managements assumptions prove incorrect actual results may vary in material respect from those discussed today.
Any guidance that management. They also in this conference call represents a point in time estimate.
The company expressly disclaims any obligations 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 He lashed Kevin.
Thank you Wendy.
But your partner to join the call a chip companies when she deal.
So what about you all streaming largely chosen to lead the organization to its much level and keeps us.
If you were drugs, it's like Chile, My passion for the Biologicals and that's true stems from a light crude agriculture.
Look at mission that multiple factors affecting modern day agriculture pardon.
Oh, changing the way the industry boosting each word tables.
Long before corporate banking affected all individual laws. The world was focused on the new human delivering safe affordable high quality food, you know by making substantial amount.
The goal pandemic has underscored this dynamic on blue collar bookings for the role they play to ensure customers the boxes to the tools in.
Children's challenging times.
I'm equally grateful to our child for those are my goal is really supporting trucks not supposed to be French Apollo biological solutions.
Today's financial results onto the will make embodied in created an opportunity for will start growth should be lucky.
As you see on slide four companies entering a new studies as a commercial leader in biologicals.
I think about potential in terms of velocity, which by definition and speed with direction.
We can accelerate commercial all seems like spending in three ways at the same Todd.
One lots and lots of volume goes about based business.
Expand into new markets, whether by called why did you all three or by type of product and tree introduce new project approval in terms of out a movie about.
What do we bought them in house, what we gained they choose to teachers up would you choose important shows.
The possible can you go what are you in my mind, it's clear that go through one slot plot.
Hi, My work with a dream in the near future our focus will be on how we continue to leverage the base business well show or do you want to staff and and broadening our global reach.
I was hoping on the brand extensions and qualifying products. It off the biggest mutual most though new term.
I guess your peers. That's you know just good value, creating acquisitions and partnerships. So moved to pull far more July <unk> walk we want to themselves.
Well evaluate these older people bars opportunity for neutral accretion from proven performance establish a lot jobs and robust intellectual property.
Underscoring all just housekeeping one like you focus on driving operational and financial excellence.
Right on income and cash flow.
If you were joking aside service.
We are clearly growing the top line gross profit and gross margins all important metrics for success.
What are we still have to work.
Due to bring other metrics monkey turned profitable and generally positive cash flow.
I have a strong buyers on operating expenses have a cleaner and you look relationship the bottom line growth.
And we must you haven't always been through about lunch.
I was there a telephone grows I fully expect the operating expenses on an absolute basis to grow whoever spending house to grow at a significantly more weight didn't revenue and gross profit.
We look out some historical characters on operating expenses.
Sure those with you in a moment.
The company have spent significant time and resources a bad thing that's part of one and building the infrastructure plan could possibly in global footprint.
On a local level jobs, Gail and build a full service biologicals company would the scoping capabilities across the highest called segments in the industry.
I want to underscore the importance of the opportunity boys overcrowded and segmented market.
I mean, most of the clearly either in the biological states.
And does not are going to once again shelf space with distribution and share of wallet blog.
China watches is as important as technological progress and the Big news that we have Bose.
It's my oldest your hobby lobby to lead the company to this exciting things and deliver a clear path to profitability.
Well I'd like to turn the call over to Jim Boyd and Kevin Campbell.
We're going to provide more details on the commercial financials himself, we saw in the second quarter and first top.
Jim.
Thank you Kevin.
And I would add my thanks to our customers and her team for all that they haven't changed in a difficult environment.
On a high level, we recorded not only the eighth consecutive quarter of year over year revenue growth, but the highest revenue quarter in the company's history.
Revenues of $21.8 million into first half a roughly equal to the entire year of 2018.
We had our seventh consecutive quarter of gross margins above 50% and a record for any quarter at 60.6%.
If you would turn to slide seven.
Second quarter revenues rose, 74% to $12.2 million from continued expansion of our base business, coupled with further penetration in the seed treatment market and our international expansion.
Mobile sales in row crops were particularly strong that's why the addition of pro friends family of seed treatments.
Second quarter gross margins of 60.6% were the highest in the company's history and reflected a high value sales mix.
These favorable dynamics also led to a 58% improvement Internet boss, which was $2.9 million as compared with $6.8 million and the second quarter 2019.
Adjusted EBITDA also improved 61% to a loss of $1.5 million.
Similar dynamics drove that 39% increase in revenues for the first half with strong contribution across the whole portfolio led by our expansion in a row crop in seed treatment markets.
Gross profit in the first half rose, 47% of $13 million what margins of 59.3%.
The first out also saw a decrease in our net loss, a 7% improvement to a net loss of $9.9 million.
And then adjusted EBITDA, and 18% improvement to a loss of $5.2 million.
The cabins earlier point, we want to keep a sharp focus on the ratio of operating expenses to revenues and gross profit.
Our strategy is to identify opportunities to manage costs, while investing only where we can accelerate growth and profitability.
Slide eight illustrate this point by comparing the first half of the last four years.
From 2017 through 2021st half revenues have increased at a 27% CAGR and gross profits at a 43% trader.
Operating expenses have also increased but at a significantly lower CAGR of 9%, including noncash or nonrecurring items.
The relationship of operating expenses to revenues and gross profit is moving in the right direction and taken together they accelerate our convergence on EBITDA breakeven.
Operating expenses in both the quarter in the year include. The addition of Profarma as well as a non cash amortization charge from the acquisition.
Expenses were reduced somewhat by a 1.4 million dollar benefit from the TPP loan we secured to ensure our in place were continuing to serve our agricultural customers at the start of the Kobin 19, pandemic, which coincided with the U.S. springy growing season.
Additional cost saving measures also were implemented and were mostly realized starting in the second quarter.
For proceeds of the P.P.P. you own also are reflected in operating cash in the amount of $1.7 million.
Cash used in operations improved by 52% in the second quarter.
$1.5 million.
And by 27% into first half at $7.7 million also due to growth in revenue and improve gross profits.
I also keep a close watch on cash on hand.
Which was $10.5 million at the end of the second quarter and inline with our unrestricted cash and cash equivalents at the end of the first year.
We completed our weren't restructuring transaction in the quarter with $2.5 million to those warrants exercised in may.
This agreement provides an additional $20 million in proceeds if the warrants are exercised sinful over the next two years.
Assuming the warrants are exercised we believe this provides us with balance sheet and financing flexibility as we move toward breakeven.
The measures we have taken to drive growth tightening spending and strengthen our balance sheet are reflected in our results. So far this year.
We remain optimistic about the remainder of the fiscal year, yet prepared for the potential ongoing effects that the pandemic may have on macro conditions in the agricultural sector.
We expect to drive additional revenue growth and international six expansion in the second half of the year with gross margins inline with our annual target in the mid 50% range.
As we saw in 2019 and as is common in the U.S. AG industry I slightly higher percentage of our 2020 revenues occurred in the first out.
That said, we're pulling multiple leavers to accelerate revenue grew up through years that.
Long term, we are on track to deliver profitability and greater shareholder value.
I'd like to turn the call Kevin Hamel now for his insights on our commercial prospects.
Thanks, Jim.
As it comes back in the first six months of this year I can't help every truck on the incredible work done by everyone <unk> agriculture industry.
It's taken my remark about tenacity and creativity during this pandemic.
And our customers are good we think are ensuring the safety of our food supply.
It's been our privileged to support them.
The results we achieved in the first half a year have their routes in the commercial strategy, we put in place starting in 2018.
Before turning.
Turning to slide nine.
Our analysis showed that we put on raw material valued by.
First.
Well I think broke a big existing portfolio, including the creation I've got a bio unite pulled down.
Second accelerating growth by expanding our seed treatment and international presence.
And third extending our reach what next generation products.
No they come through accretive acquisitions like profile.
Or former internal pipeline, such as our advance insecticides and them appetite.
We also have opportunities through brand extensions.
It's more or less manufacturing or coordination approved and got lower cost of goods and grow share.
The first note that the base business, just driving either through increased market share or further market penetration.
The bio your nights strategy, which combines the power biology, what the performs the chemistry.
Remains the cornerstone of our building remedy to expand in new and existing markets.
Oh boy, a buyer protection products in specialty crops in cover crop represents roughly two thirds of our projected annual sales.
Over the last year, you have seen they've grown in that 30% range first at the first out until you're the poor year.
A second pillar of our growth strategy is expanding our international presence, including new distribution agreement outside the U.S.
The script textbook.
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No work with picky and distributors worldwide more than 20 countries.
We anticipate that by the end of this year of global mix will shift to roughly 70% less.
30% International.
This compares with a 90 10 split last year.
But the big changes coming from the greater sales in Europe Latin America.
Cornerstone of our international strategy is our seed treatment business.
You would.
Turning to slide 10.
The acquisition of pro form has been a major component of this success.
And that's tracking it could be accretive to net income and cash from operations. This year as we had forecast.
Sales in the second quarter Europe whats wrong.
And we won't have some initial revenues in Latin America later this year as we began to tap that market.
Overall, there is an aggressive trial program underway will help our and the worlds largest growing regions.
The U.S.
Additionally, we're reaching beyond corn and soybean into other crops, such as Camilla cereals names.
The times acquisition, we anticipated synergies between our portfolios.
Potential for cross selling its just starting to play out.
Of the total trials in Brazil.
We expect to see treatment demonstration.
That's fair insecticide and the medicine side combined that pro farms easy to corn.
New product introductions, how can be part of any successful growth strategy.
And we are advancing both near and midterm opportunities.
You have to strong near term tenda debts from our internal pipeline.
Both of which our next generation of insecticide and them appetite.
They can be applied across a range of application metrics, such as both here and grow into treatments.
Well offer blowers enhance the formats and will improve our manufacturing productivity and potential market reach.
Yes, so field trials have been positive.
And as we prepare for regulatory submissions.
Well early in the additional testing in the United States in Europe, the plants and pets in Latin America in the second half a year.
Well the opportunity as a little further out.
We also continue to invest the NBR zero one for year one block.
Our no buyer herbicide the field testing and formulation work.
As well as advancing the necessary regulatory packages to gain EPA approval.
Across our portfolio and our pipeline the whole lot markets have become a major part of that broke steroid.
And the size of those key market is shown on slide 11.
We believe the roll off market will represent roughly one third of our projected sales this year.
We have begun immediate opportunity, but pay center.
Which is our new entry into the health market and is available for corn soybean and we.
Hey Center is up for your product you see an integrated pest management program.
A couple growers, probably starting a choice.
It is being applied this summer in 90 trials across the United States.
It is being tested and attack makes with conventional fungicides or in combination with procom merge and footwear product for plant health.
Hey, Saturday cats, our growth strategy on multiple fronts.
It's a new product.
There's another entry into row crops.
Synergistic with other products in that portfolio.
As it expands our bio <unk> offerings.
Last week, we announced that we are working but by a commercial partner that seeking U.S. EPA approval for a buyer to unite pretty Mexican paying the active ingredient in the Galleria.
This will be our first ever bio will unite pemex offering.
Which will improve ease of use and adoption on farm.
Once approved we will have exclusive rights to solve this can be California market.
In summary.
The commercial strategy, we're implementing and the progress that we're delevering, our proof of the market opportunities and our ability to meet in the biologicals industry.
This quarter's results were delivered despite the headwinds created by global pandemic.
And on certain international trade environment, and shifting market dynamics across agriculture.
As we finished the second half a year.
We are optimistic about our ability to continue to grow the base business.
Expand our footprint globally, particularly in row crop and bring new productivity tools to growers around the world.
I'd now like to turn the call back to Kevin you asked for his closing remarks before we open the call two questions.
Thank you, Kevin and kudos to you and everyone on the commercial team for the results you've delivered so far this year.
I would add my thanks to our channel partners on to our ultimate customers to growers as well farming is hard working to bust of times those take an even greater perseverance and vision across the agriculture industry to bring flew to our channels during a pandemic.
I know I speak for the entire team when I say that we're here to support our customers and ensure we contribute to their continuing success.
In closing I'd like I'd ask you to turn to slide 12.
This chart isn't I know snapshot of the revenue gross profit and operating expenses Jim showed earlier for the first time.
This chart confirm for me, what I believe instinctively.
The company has entered new territory with it its trajectory for growth leadership and profitability.
Unlike Jim and Kevin on the new Tomorrow, and the team and I have a steep learning curve ahead of me.
That said my years of experience and agriculture bias me toward analyzing and evaluating key metrics to find opportunities that will accelerate the velocity of a business.
We've introduced one today with a focus on the operating expense ratio.
I'll be working with the team on other metrics across the income and cash flow statements as well as on the balance sheet that will provide clarity on where the opportunities lie to advance those with the greatest return on investments.
The opportunities in front of us or more exciting than the ones behind us I believe a customer driven focus with superior products, coupled with operational and financial discipline will allow us to accelerate our velocity and deliver exceptional value for our customers and shareholders.
At this time I'd like to turn the call over to the offer to begin our culinary section.
Operator.
Thank you, Sir ladies and gentlemen, if you have any questions. Please join the queue by pressing star one.
<unk>.
Just make sure your mute function is turned off till I was received that signal.
At this time star one for any questions.
And first we'll hear from Ben Klieve National Security.
All right. Thanks for taking my questions.
First congratulations on a really nice quarter here I guess, we'll start with a couple of questions on the revenue side.
Jim You commented that does a row crop performance was particularly strong I'm wondering if you can provide some context behind the drivers of this and then also in the domestic row crop market given that corn acreage wasn't what didn't come in plants. It does as expected a in the U.S.
Is there any revenue that was left on the table maybe that you that you potentially could have delivered had corn acreage been up a kind of where it was expected to be at the started the year.
Yes, Hi, Ben it's Kevin here last year.
Great questions and I'm going to ask Kevin Hamill.
What's your buy more clarity for you on those.
Oh, Okay. Thanks, Ben it's Kevin have O'hare, a couple areas where in terms of second quarter revenues the set us up as.
Really the pro form acquisition, our bio United strategy, where the base business.
Specialty business has helped us really a lot in the second quarter.
And how I define the based specialty business.
It's basically all the U.S. non seed treatment useless.
And here in the.
Market, we saw good growth across the U.S. includes in Pacific Northwest in the southeast.
And part of this growth drivers actually was the bio United strategy.
And if you remember back to the.
To the earnings call. We mentioned that are based specialty business is actually doing well in delivering about 30% growth over last year first half the first half and <unk> full year.
Looking at the.
The featuring the business they may reference of corn and soybean <unk>.
Actually.
They bounce a mix between soybeans and corn were favorable for us and we actually had good applications on to that see now what we'll do it wont be setting up now in the second half for applications and see that's being harvested now in the U.S. going into to be plans next year.
And overall in terms of second quarter Pro form had a strong quarter in Europe as they prepare for application the product portfolio and see that well be pilot 2021 until in summary, good U.S. base, especially business.
The soybean corn mix, what's good for us overall and also as we go has a good European application season upcoming in Europe the Pope.
Got it yeah. Thanks <unk>.
Yeah, Ben just had to Kevin's comment I, you know I've reiterated that we're very happy to see that we had girls across all geographies and across all product lines, which is very encouraging for us as we move forward into the second half of the or into you know that could be upcoming here.
Got it very good.
I guess moving down to the.
A couple of questions on on Op actually cabin, Oh, excuse me, Kevin how a shoot you.
You commented in your prepared remarks about you know to kind of a an intense focus on controlling opex here.
I have a couple of questions in that context first how did your level of spend.
As it pertains to own one for an old one five changed and then second I'm curious if you can elaborate on on what you say no to I mean, there's a huge amount of opportunity in your pipeline and I'm really curious kind of kind of where are you draw the line or from a you know from an opex spend standpoint.
Yep.
Kevin here coming he last weekend so.
As everybody's figured we have to Kevin H.'s it with us So I'll make sure we clarify.
Oh, Ben So in terms of you know our level of spend.
We're quite comfortable where we're at now you know in terms of being able to drive the results we want.
I think about Opex, yeah in terms of relative ratio to revenue or gross profit.
So what I'm getting at is as our business grows I expect our operating expenses to grow but as I said in my opening remarks that number has to be significantly smaller.
You know in terms of you know you asked a great question on our pipeline.
You know the thing that we're going to focus on where the area, we're going to focus on Ben is.
Evaluating very carefully where we get our biggest bang for the Bucks so to speak where we can drive shareholder value quickly what projects should we be fast forwarding slowing down and it's a bit it's a dynamic environment I'm for us, but I can miss.
Sure you that.
That will be a strong focus for us in terms of continuously looking at our portfolio.
Analyzing the make versus buy scenario question.
And really focusing in on ensuring that we're driving ROI, we're driving shareholder value a we're growing the business.
The most efficient and effective way possible.
Got it very God and.
I I guess two other quick ones for me and then I'll jump back in queue first I might've missed it but did you guys report the revenue contributions from from acquisition on the quarter.
[noise] have been Kevin here I sure again, we didnt know much and as your.
I guess see in our results, we don't segment byproduct where by sector.
Let me say that [laughter] Pro farm has been thus far in excellent acquisition for us as Kevin Hamel mentioned.
It's been accretive so far in the year and we fully expected it will be accretive in the full year.
And if I had the opportunity to.
To acquire another pro form we'd certainly love to do so it's been an excellent addition to the company and I think we're really just starting to see the you know the positive synergies is combining that business with our base.
Okay.
Perfect I think I think that does it for me again, congratulations on good quarter and I'll get back in queue here.
Thanks, Dan.
Next question will come from Samir Joshi with H.C. Wainwright.
Thanks for taking my question colleague them.
They can do a flip called.
That's a about lots you and the previous years, a you UBS just by the nature of your business experienced a seasonality quarter over quarter.
And Uh huh.
And as you know profile change that should we exit expect to see more.
Not too much also seasonality between quarters going forward.
Yeah. Thank you smeared 70 last year [noise].
No.
Answered.
Your question then.
On my part and I'm going to handed over to Kevin Hamel, So you're right us year agriculture by its nature has seasons and quarter over quarter. There is difference in terms of volume and product mix.
For us the first half of the year, we'll continue to be the stronger I'm part of our year. Both in terms of revenue and gross margin and gross profit, but we certainly still continue to see a strong second half of the year.
The addition of pro farm, which we like broadens, our footprint and our market reach and it doesn't get us a stronger foothold in the south American or the southern Hemisphere, which will certainly served to even out.
Our performance in first half second half, we got a little ways to go there I'd say in terms of building that out, but it certainly will support a bit more even flow throughout the year.
Kevin Hamill <unk>.
Yeah. Thanks, I agree with you Kevin He lives this is Kevin Hamill and that the.
Pro form acquisition gives a more of an international presence help so smoother corridors.
And good penetration into the row crop market.
Maybe a best way to answer. This question is give a little bit of flavor, what's happened in the second quarter.
And I love that what we see happening in the second half of this year.
So in the second quarter.
Oh really driven by our investment company made in pro farm and AG bio United strategy with a based specialty business.
So what happened in our based specialty business is that we saw the insecticide and fungicide portfolio.
Grow across the board despite market headwinds.
And as mentioned, we saw 30% growth and this business over last year first half. The first shot second full year. The player then a pro farm we had growth in Europe.
Where are they applied a there are certain to apply the product I'm see that won't be plan, a 2021, so, especially business and I'm Your pro farm and second quarter of 2020 as you move forward to the second half of this year well going how was that a bit of a mill.
So sales between our U.S. A's based specialty business, our U.S. seed treatment business in our international business. So in that second half as a mentioned will be finishing up harvest on most crops in the U.S. specialty business and then we'll be transitioning to plantings in the south.
He's in southwest and the U.S.
And our domestic U.S. seed treatment business, let's start treating seeds are being harvested and will be planet and 2021.
The main international opportunity will be in this high well be in Latin America, but boy or applications about pro farm in N.B. I products. So again, the second half will be a strong mix of our sales platforms.
S.U.S. specialty business, that's exceed treatment and international primarily focused in Latin America, but pro form products.
Under certain so that does station basically with a what I T. Also products Oh, you know what ideals lesions north and south.
You are basically even though.
That's what that's going at the same time.
Your revenues.
Moving down.
The recent news about wise.
Some of the sleep at all so well what books, but there are what is the scale of the flip the other but does come and expected to come out and what is the pipeline a product that you wouldn't be working on a blended to work on.
Yes, I mean, there. Thank you it's Kevin he last year again so.
Then you hit on a one of our current projects and the company today. We I can tell you that are being very new here and an insider into the into the portfolio I'm very excited about the pipeline that the company has.
No in fact, we have more products to work on them, we have time and resources to.
Focus on all at once.
So what the team is doing is a refreshing the look on all of our pipeline in terms of ROI ton to market so market potential all of those metrics.
And then we're going to reset our path here in the next 30 60 days in terms of what we're going to focus upon.
The idea will be obviously, what can we bring to the market.
The fastest the cheapest that bring us to most ROI and create the most shareholder value.
So that's a very high level Kevin.
I ask you to give some more color in terms of what we have coming near term.
And our pipeline to the market.
Yeah smear this is Kevin ammo again.
No everyone really defined pipeline differently, here's how I defined as you find it really in three ways.
First there's new product introductions in two new crops or geography. These.
Great examples that we talked about earlier on Blaise.
Using pacesetter depend on trade, the U.S. soybean and corn market and this also has the potential of the go into other global markets.
The second way I define a pipeline as brand extension extensions for next generation of products.
A great example of this is our advanced insecticides and then that aside we believe this product will deliver to growers increase ease of use and greater ROI.
Allowing us a little to increase our market share in crop expansion.
And the final third way I'd to find the pipeline it's brand new novel offerings. A Great example of this is our longer term herbicide offerings.
So is in summary, you know our pipeline is important to generate both revenue in the short term medium term and long term.
We believe our pipeline is set to deliver revenue next year throat through new product introductions.
And then in the mid term our next generation products and longer term is our novel herbicide offering so the three different phases, we got products to meet each of those phases.
Understood. Thanks, So that just one clarification then so the follow up on Ben's question are you.
As it regards either one floor and get on slide.
Dumps also about Google process with the build up in crosses or did the coal would the ER the doesn't any hurdles so will that be good.
By any means.
Yeah Kevin.
With that when the east.
Yeah.
Samir I think is the it make sure I understand the question properly my signal on this I was little bad blurred, but you're asking if the Covidien pack. There are open for all one five testing this yet is that correct.
Yet.
Yeah, Yeah, and last call we talked about this little bad is that right now our primary focus was on getting through regulatory submission or zero one for.
And in doing so we actually found a nother high performing opportunity, but this molecule MACOM is still one five so we're continuing to proceed but the regulatory submission and then also worked with this.
Novelty of 015 in terms of the greater performance as we go forward so and that is the major focus of zero, one floor and Joe one five right now.
Okay. Thanks, Isaac list, that's just my questions offline. Thanks.
Thank you Smith.
Next question comes from Bobby Burleson with Canaccord.
Hey, guys.
Hi, a couple of cabins here so.
As for Cabot Helios.
So I was just curious.
Obviously, you're going to focus a lot more execution and I'm trying to rationalize costs.
Is there anything either your portfolio that you would consider calling or expert trimming.
You know it seems like there are some holes that you'd like to plug, but are you, saying that you say.
Maybe would wind down in terms of investment going forward.
Yeah, Bobby Kevin he lush a here.
You know I.
Again, I'm relatively new so will talk is this a little bit of a high level, but I can I can tell you that.
I'm very impressed with how the internal pipeline has been manage.
I think that company has been focusing on the products that really do have the potential to be game changers for us and they've done some excellent work in terms of working on the formulation aspect.
Of our existing products, so that we can make them faster cheaper better.
And expand our margin opportunity and a allow us to get on more acres by being.
Provide easier.
Use formulations for our customers so.
We don't have that many projects going that I would say you know there's a bunch that we need to kill right after that but what I would say of all the is it we will definitely be continuously evaluating.
The projects that we are working on too.
Make sure we're working on the right ones and that takes some discipline.
And then some rigor obviously because you got to be careful you don't get embedded or or entrenched in the product line when something better comes along.
But you know, it's a fun place to be that we do have those options.
For us and you know we have lots internally and I fully expect we're going to get to look at all and external products as well.
From others that we can collaborate acquire in license I'm et cetera going forward. So I'm really excited about the feature and things that will get to work on a going forward.
Great.
Yes, its touched on it.
R&D somewhat and just generally.
Staying disciplined there.
I know you've already started to be lean on yesterday. He does it because he tried to drive synergies across your your products portfolio or are there are different and with certainly is there a lot of leverage, particularly on SJ going forward, how would you draw distinction between.
Yeah, the R&D and yesterday leverage potential.
[noise] above it up to I mean, that's a great question. So when I think about driving profitability as Kevin here rushers still.
I think about everything from top to bottom revenue margin I'm off access gionee supply chain a working capital.
And we'll be looking at all of those as we move forward I'm happy to say this is a company with lots of potential.
Can you do better a course right I mean, that's why we're here our job is to continue to drive efficiency make to all of our ratios I'm better move them in the right direction.
And so I'd say from our perspective and I'm happy to say my team is with me.
We're going to look at everything and we will continue to look at everything in terms of and making sure. We are a top class company and all aspects of of running a business in our sector.
Great and then just one last one.
For me I'm.
Just thinking about Capex needs you guys I think you're planning a production plants upgrade.
And you might need to.
To your rates a little debt to help fund that pretty dynamic environment out there I'm just across the board I'm wondering is kind of your capex needs that stats fluid as anyway are there opportunities to sit costs maybe.
Relative to that Formula that you have plans.
[noise], Bobby Oh, all answered the.
I'll start to answer that question freedom and a handed over to Jim boys to give a bit more detail, but in terms of.
Your question do we need to raise capital to meet our plan.
ER at this point in time, we believe we have enough with our warrant a product.
To get us through the cash breakeven on an adjusted EBITDA basis. So.
That includes Opex and I'll get gymboree to clarify that 10 kids and speaking at a turn.
In terms of overall Capex I'm not again is something that we're looking at we have multiple options for expanding our plant capacity and what products, we manufacture where that is being discussed.
And we'll have more clarity on that.
I'd say by the next quarter.
I'm, Jim I'm going to handed over to you because of [laughter] I ran out of my experience on that topic or thus far I'll get getting over to you to add some more color.
Yeah, well Bobby's correct that we do have a 4 million dollar addition to the plant to bring in Majestene and venerate that we've been looking at we're also looking at alternative ways, Connecticut [laughter].
So it's not clear if we are going to actually go forward with that but we also have been talking to many that source isn't there appears to be.
Sources available to us.
We could borrow the money if we needed for that plant expansion.
[noise] sounds like there's a decent amount of flexibility in terms of high yet.
How you go about that.
Yeah, I think there as I I think.
No we always try to be creative we try to you know not only about running the business, but how to.
Meet our desired goals and we're really really looking very hard at this $4 million and seeing if we have to spend is.
Okay, great. Thank you yeah I would.
Bobby I would echo gyms, Jim's last comment that we will be we will be going through that project, where they put a very very intense scrutiny before we pulled the trigger.
Thanks, Kevin Thanks, Jim.
It up.
No.
And next from Jefferies, We have Laurence Alexander.
Hi, This is a Adam you based on her warrants today.
I was wondering you know taking a step back can you talk about if the current environment shifts your expectations around the path to EBITDA breakeven.
And then if you could just touch on maybe the more certain parts of that bridge, where she is uncertain.
Yeah, Hi, Adam it's Kevin He last year can you just sort of repeat your second question I didn't quite catch it you just a path to breakeven.
Corona virus shift your expectations, there and if you could just talk about the bridge to break even levels and white, maybe the more certain parts of that bridge yard versus a more market dependent parts of that bridge.
Right.
Yeah.
Oh, Thanks, Adam.
So in terms of.
Do we expect cobot 19 to affect our path to breakeven.
Certainly we are.
Paying very close attention to the impact.
Of that virus I'm on the market.
We're happy to say that.
Due to the importance of agriculture, and the importance of food production around the world. Our industry has been prioritized as a top of the list.
In every single country that I can think of around the world, whether you're talking India, or or Europe, or China or North America.
Everybody is working extremely hard to make sure the agriculture food supply chain and industry is working so that to me is very positive. It I'm very happy to you know to see that happen because obviously, creating food for the world is I can't think of any more important actually.
So I think that we need to be aware of it Adam we need to be.
For any disruptions that may happen, whether it's in supply chain manufacturing, you know and the like but at this time, we don't see a major or material impact to our 22nd half of the year 22.
I mean, one going forward.
But as everybody knows where it and dynamic environments and we'll be paying very close attention to you know changes as it happens, but we feel we're well positioned to continue to grow we're taking lots of precautionary measures to ensure our ability to supplier customers is in place.
And so I think we're you know where we're sitting here today fueling.
Relatively comfortable in our plans, but and they'll pass it over to Kevin animal to.
Some comments around that you know the outlook for us from a revenue standpoint.
Yeah. Thanks.
Kevin He asked as Kevin Hamill.
Talking about this a little bit earlier on in terms of our as you go into the second half and they're forecasting revenues that.
We really do see.
Continued growth in the second half a mix.
The three core pillars to our business the U.S. based specialty business you guys see people investing in our international business. So we really see those.
Harvest, finishing it up in the U.S. transitioning to some new plants in the southeast and southwest will drive continued growth in there.
Domestic U.S. space based specialty business.
All right domestic seem treatment business.
Well I'll start treating to see that's being harvested.
And we'll and they will be planned and had 2021 and then finally in the international side of things. They mainly for your business is Latin America welcome MB I answered the both arm portfolio. So strong sales mix across the different platforms in the regions should.
Continue our growth in the second half of this year.
Great. That's very helpful. And then gets my last question Oh, you know as she and I. Just wondering if you could give a little more color on the cadence of the cost expense ratio moving forward around the.
Next upcoming quarter, it's how we should think about that kind of moving around as a sales accelerate.
Yeah sure I will make a comment how did it with the gym Boyd our CFO. So.
Adam.
I'm, a big believer in looking ratios.
To benchmark ourselves.
Obviously, the first when we put out.
Is the operating expense ratio to revenue.
And our objective is to continue to drive down.
So you can do it two ways, obviously you grow your revenue and or are you a little where your operating expenses and I'd say.
Well, there will be I'd like to do both but you know work would be very careful in terms of how we manage opex.
Going forward.
No the way I think about the year a is that the second part of the year is a bit lower in terms of revenue versus first half. So the off assets ratio is probably going to decline somewhat in the second half of the year.
Which I think is relatively normal, but I'm on a year over year basis and looking at it moving forward.
I want that number to keep coming down you know quarter by quarter It gets a little bit.
Variable because of our business, but directionally you know, we're going to seek to continue to improve that number.
Jim.
Yeah.
Thanks for the question, Adam I guess out sort of address both your questions. We obviously have more control over operating expenses in improving our margin line. Our gross profit line than we do over revenues, especially in light of of covert 19.
I I think that we tightly manage those on we're always open to opportunities or you know are looking for opportunities rather to reduce those expenses and and we would do that to the extent that we could if we saw you know a you know covidien impacting us greater than it has to.
To date.
Our big levers or or the most discretion, we have without laying off people are in field trials.
And ER and ER and our.
Our R&D projects is as you mentioned and we can we can tweak them up or tweak them down a bit, but we do sacrifice longer term.
Gross when we do that so we try to maintain a good balance.
In our investment in the future and keeping that ratio of revenues to operating expenses in line with as as Kevin mentioned.
Great that's super helpful. Thanks, a lot.
Thank you Adam.
Next we have anything Weinstein with aegis capital.
Hi, Nathan Hi, Hi, Kevin Kevin and Jim. Thank you guys for taking my question Congrats on the strong quarter.
My first question just that's about the financial House, Oh, your distribution partners and also the N.
I get the farmers I mean, how are they looking after we've come to a pretty unprecedented first half from 20 to 20.
Hi, there isn't a Kevin he last years.
That's a great question I don't know if we have the answer in terms of power distribution partners and the farmers are doing.
I think about it maybe I'll answer this when it's in a you know the long term viability of agriculture is unquestionably strong and it will be unquestionably healthy to me I think different customers of ours around the world and growers around the world have been.
Impacted differently.
But certainly from my standpoint.
We're seeing this as you know a bump in the road me on cross my fingers, when I say that rather than a long term systemic challenge to our industry.
You know I always go back to the fundamentals of you know people need to eat right. So.
We will we as an industry and we as a global economy will figure out a way to make that happen.
You know without being said I'm certainly not aware of.
Any what I would call financial hardships in any of our customers.
As well known has been you know lots of assistance provided from government agencies around the world to ensure agriculture continues to function and so I think I think we're going to get through this just fine you know and I don't mean to underplay the.
The impact of Coca 19, it's been a horrible you know situation for many many people around the world.
I think in terms of agriculture, we need to you know we need to stick toward eating into.
Continue to do it we do to support to our customers you know, whether the distribution channel or the grower and that's a we aim to do and Kevin I'll I'll hand over to you Kevin Hamel to.
Provide any comments you like in terms of our customers and feedback we've heard from them.
Yeah. This is Kevin handle and I just want to build out what you said the end there Kevin he license that.
The agriculture community get incredible work over the last few months to ensure the safety our of our food supply. It's not we can't think of my mouth to what they've done.
But specifically you asked about the a couple of leveled off in the distribution chain. They just trip distribution the grower.
As you would expect there, but the distributor their daily practice, our daily routine has been really appended in terms of social dismissing making sure if things in place I'm the supply chain, but they've done a great job of it you know really there's not been any I was just of products in the markets.
He's been able to serve the girl well, then then working really really well I'm, making sure that we have continuous production of our other.
Food supply.
From the slowest, let's back up there.
Three things there the impact of labor.
A more crops you grow.
And so growth areas.
Some one area that's impacting specially the labor intensive crops such as all mens.
You're seeing a lot of the cautionary measures taken different deck protect the their labors and their workers in the from safety Messick, a lot of more resources in time to make sure that they have the managed style and also make sure. They have a lot of the sufficient labor to managed.
Those crops, so neighboring spend a bit of Uh huh.
Very intensive management issue for growers.
The second part too it is in terms of specific growers.
Interesting if you're less grower you had really good success of your selling to the retailer that.
The grocery store business, because the demand was really high.
If you are assigned to the industrial business inlet as or potatoes that mark was little bit difficult. Because you had that you didn't really have the packaging or the set up that's your systems to really serve those those side of the business, but overall the growers have turned out well one interesting shape.
Meant that done well is the organic segment, we saw that business growth continued to grow this quarter and that's because people are making more fruit snacks not the most your store.
And I just thought the finishes out by commending the sales team.
There are really the big credit in terms of getting this quarter as successful as it was they really had to redo how they plan their daily routine they figure out ways, new ways to educate their distribution in the growers that how because our products and find ways to let them be aware of our products in the.
Due to them so I commend our salesforce now in terms of how they perform the last quarter during covert 19.
Yeah. Thank you Kevin Thank you all those things as well.
Thank you that was really origins answer it's like it.
I could just maybe ask a question they came up during your answer but it sounded like what the let US come at you sort of saw some shifting customer preferences and I don't know if you saw that maybe early on with quoted but has there been some for assistance from that and whatever changed or trends you saw.
[noise] Gavin do you want me to Kevin he or she wants to answer that.
Yeah go ahead.
Okay, well you know look stake.
You know, we're coming into a new planting seasons in parts of the U.S.
And growers are preparing to put the product in the ground right now it just seemed to this new market reality, but if you take for example, the potato industry whereby the one of the biggest consumers of potatoes is actually in the French REIT industry to industrial.
Does show like Oh.
Universities.
[noise] restaurants hospitals, and so you're seeing a really big switch in certain core crops like.
Potatoes. Meanwhile, I go to another crop.
Like corn.
Covance 19 impact they didn't a different way in that.
The ethanol the oil prices went down because everybody was traveling last well Jack impacted ethanol, which goes into our petroleum and then some trade.
Trade Wars went on so it's interesting crop I crop has their own idiosyncrasies that you have to look at potatoes is retail corn there was due to ethanol production given by oil et cetera, maybe go to all men the almost hasn't been affected by the cobot 19 terms of cuts.
Assumption, but more so from a labor there just this they're dealing with labor issues and that crop.
Right. Thank you Kevin.
I would like to thank everyone for your time in interest today. Unfortunately run at a time, but I can.
Sure you that we're open to speaking with any of you at your leisure or at your convenience. So please reach out if you have more questions.
As we move forward I know I will have any advice and experienced a great team.
Roadmap is clear and I strongly believe we can build on our results oriented customer driven culture to achieve these goals and the second half results to deliver great Hill greater shareholder value.
Thanks for your time and attention everyone and we'll talk to at our third quarter call if not sooner. Thank you.
Once again, ladies and gentlemen that does conclude or call for today. Thanks for your participation you may now disconnect.
[noise].