Q4 2021 Marrone Bio Innovations Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome them Tomorrow.
This conference call fourth quarter, and full year, 2020 One earnings conference at this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session. Just a question. During this session you will need to press. The Star then the one key on your Touchtone telephone. Please be advised that today's conference maybe recorded if you recall offer assistance. Please press Star then zero I would now like to turn the conference over to your speaker host Linda.
Linda Moore General Counsel. Please go ahead.
Good afternoon, everyone and thank you for joining our call.
Welcome to the 2021 fourth quarter and full year earnings conference call for Marrone bio innovations.
Our presenters today are C E O Kevin he laughed and interim CFO Madame Johnson.
They will be joined by Matthew T N N senior Vice President for International sales and come out <unk> senior director of product marketing for the Q&A session at the end of the call.
If you would please refer to slide two I would like to remind you that this conference call may contain forward looking statements within the meaning of the Safe Harbor Harbor provisions of the private Securities Litigation Reform Act of 1995 regarding managements 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 reports filed by the company with the Securities and Exchange Commission, including under the heading risk factors M D and E and elsewhere in the company's annual reports 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 He laughs Kevin.
Thank you Linda and thanks to everyone joining us on the call.
We'd like to cover several items with you today.
I'll start with a high level review of 2021 at an outlook for 2022, well with Don will go into more specifics on Q4, and the 2021 financial results.
To wrap the call up with a few comments on our definitive agreement to combine with bio series, which we announced on March 16th.
If you would turn to slide three.
Our strong into the 2021 fiscal year contributed to our 15.5% Avenue revenue growth.
In line with our prior forecast or.
Our fourth quarter results were driven by solid demand from our customers, who are looking to secure supplies and lock in prices in the face of tight inventories and rising costs the agricultural supply chain.
Gross margins exceeded our expectations.
And we're extremely pleased to report our first full year with margins above 60%.
This result speaks to the improvements in our product mix and to manufacturing efficiencies at our Michigan plant as well as to the capability of the entire team to manage our business in a dynamic environment.
We made excellent progress towards our goal of obtaining adjusted EBITDA breakeven this year with a loss of $8 7 million in 2021 as compared to a loss of $11 million in 2020.
But Don will speak in more detail about our operating expenses, but I would note that in 2020. This line item benefited by one 4 million from the forgiveness of the PPP loan.
If we take this into account adjusted EBITDA improved by more than 30% year over year.
As evidenced by our results the combination of topline growth and disciplined spending continued to move the needle in the right direction.
With the first quarter nearly in hand, we have a good line of sight on how we expect the first half of 2022 to unfold.
We anticipate revenue growth for the first half will significantly outpace our performance in the first half of 2021.
Furthermore, as is customary for M. B I, we expect sales in the second quarter will exceed those in the first quarter.
Higher demand for insecticides, and Nomad decides in row crops in the first quarter is expected to offset headwinds from continuing drought conditions in the western United States and we were particularly encouraged by the second quarter forecast for our products in Latin America through our partnership with reasonable Baxter.
Turning to our supply we have put contingency plans in place given the uncertainties surrounding the heartbreaking situation in Ukraine.
We manufacture a number of our pro farm products through a minority ownership in a third party facility in Russia.
We have activated plans to move approximately two year supply and seed treatments and one year supply of foliar product out of this facility by the end of the second quarter.
Obviously, the agricultural outlook can you frame is highly fluid and difficult to predict and we will continue to monitor the situation closely.
In summary, we ended 2021 and are starting 2022 with a number of positive developments that set the stage for future growth.
We've recently announced two significant distribution agreements with Teva.
One for foliar products to support plant health and one related to the further global expansion of our seed treatment collaboration.
Both are major commitments by a leading player in agriculture to the value of our biological solutions.
Of course, our most notable announcements in the last few weeks has been our entry into a definitive merger agreement with bio series.
We believe our proposed combination will provide to commercial diversity and financial wherewithal to allow M. B I to deliver on its full growth potential and I'll cover the merger in more detail in my closing remarks.
Let me turn the call to Don now to discuss a few more financial items of note.
As we announced previously the dawn joined US in February as interim CFO .
And he has immediately made positive meaningful contributions to the company.
Uh huh.
Thanks, So much Kevin if you would turn to slide four.
Again, highlighting the key metrics for the fourth quarter and the full year in 2021.
As Kevin mentioned crop protection products were a key factor in the 40% increase in Q4 revenues, although that had a modest dampening effect on gross margins. However, this was still the company's 13th consecutive quarter with gross margins above 50%.
For the full year the company delivered solid revenue growth of 15, 5% gross profit gains of 19% drove the 21% improvement in adjusted EBITDA in 2021, which followed a more than 30% improvement in fiscal year 2020.
And the last two years the company has credit suggested EBITDA loss almost in half.
Operating expenses for the full year were in line with the company's commitment to hold cost for 2020 levels plus inflation.
I'd like to dive into the offline Opex line items a bit further if you would turn to slide five.
On a comprehensive basis, the full year in 2020 benefited by $1.4 million from the forgiveness of the PPP loan if.
If you exclude that loan operating expenses increased by only two 9% well below the 7% rate of inflation for 2021.
This would be true, even though we absorbed some non reoccurring expenses in the fourth quarter.
These included consulting costs, particularly those associated with the bio series transaction ended up spread payment in support of our herbicide research.
Obviously, we will continue to incur expenses related to the merger until it closes, but we'll be able to highlight those for you going forward. So that you can continue to see our underlying cost structure.
Finally, if you refer to slide six.
Like to comment on our operating cash and cash flow.
Ending cash position for 2021 was $19 6 million, a $3 8 million or 24% improvement from the end of 2020.
This increase was a function of $6 million improvement to our cash used in the operations additional net borrowing of approximately $5 5 million.
And approximately $9 7 million in cash from the exercise of expiring of warrants expiring in 2021.
Finally, I'm delighted to be able to work with Kevin and the team successfully complete the transaction with bio series.
Finance organization will be key to the integration process. In addition to keeping a steady hand on the day to day work that supports our ongoing operations I've worked with a number of companies and have been impressed by the quality of our finance team and its work.
While this is an interim position for me I hope to be able to contribute significantly to the company's future success.
That let me turn it back to Kevin.
Thank you Don it's great to have you with us.
If you would refer to slide seven.
To speak further to the combination of bio series in Maroon bio.
When I joined Marron file a year and a half ago I had a direct message to our people and our shareholders. We.
We had a unique opportunity to break out of a crowded and fragmented market and emerge as a clear leader in the biological space.
Breadth and depth mattered and channel access was as critical as technological progress.
My assessment then as it is now was that we had both but needed more.
We wanted to accelerate our commercial velocity by growing our base business expanding into new markets and leveraging our pipeline.
We were upfront that strategic accretive acquisitions, we're definitely part of the mix as we've forged the path to profitability.
Underscoring all of this was an unrelenting focus on driving operational and financial excellence with a keen eye on income and cash flow.
Our announcement just over a week ago of the definitive agreement to combine with bio series that fills those commitments.
Our partnership with reasonable Baxter, which started in September of 2020 allowed us to create a relationship that gave us comfort to opening the door to this agreement with bio series.
Our combination has the potential to accelerate the company's global reach broadened our product offerings and expand our R&D programs. It does so with the financial flexibility that allows for strategic funding of accretive growth initiatives and support for a robust global commercial team.
I personally believe this is the right strategic move for both companies and I am deeply committed to ensuring the success of the new organization.
With that said, we must stay focused on the normal course of business and our entire team remains committed to delivering greater growth, providing our customers and our growers the best product possible to support the sustainable future and agriculture.
I'd like to turn the call over to the operator now for your questions.
Operator.
Thank you ladies and gentlemen at this time I would like to ask a question you will need to press the star agenda, one key on your Touchtone telephone.
Please standby, while we compile the Q&A roster.
At this time I am showing no questions in queue.
Okay.
I will turn the call Mr. Kevin Helix.
Alright, Thank you operator.
Well just quickly.
Yeah go ahead, sorry, apologies, one just queue up coming from the line of Bobby Burleson with Canaccord. Your line is open.
Thank you Bobby Thanks, Kevin.
Yeah.
So just maybe.
Congratulations on the transaction, but maybe.
Maybe we can just.
So you're a little review on the Opex you guys have done a great job getting the gross margins up through a mix of that looks like going forward.
It's a nice robust gross margin.
And you had some ability to deliver some operating leverage maybe just refresh us on.
Historically why the operating expenses ran so so hot and kind of.
Ex any kind of serious integration just what the sources maybe of savings were that you were anticipating prior to this disagreement.
Right, so well Bobby Thank you for your question in terms of Opex in the quarter.
We had quite a few one time items that are hit our.
We hit our financials and I'd say one of the largest definitely was a cost related to the bio series transaction with that I'll turn it over to Linda and should give you some more color on what all made up our opex for Q4.
Okay.
Yes. Thank you Kevin This is Darren here. Good question, Bobby there were a number of one off crude items at the end of 2020 that were on a needed and therefore released at the end of 2020, which which distorted the 'twenty 'twenty opex expenses downward.
As as I said in the conversation when we adjust for some of those things you know we held our we hold or even our Q4 operating expenses were held at inflation or less and we also had a one time herbicide program cost in Q4 2021. So those are the primary drivers.
The change year over year in Q4.
Okay and is there was there a structural or.
Managerial kind of focus prior to you coming on board, Kevin that caused maybe higher opex that you would want it wanted to remedy like how do we think of.
The cultural change that you brought about in terms of.
Hunting hunting R&D that kind of thing mhm.
Yeah, Bobby you. It's an interesting question. So you know the way I think about it is.
The company has paid.
An extremely solid base.
He.
Had an has an extremely solid base in terms of our platform and our.
Current level of Opex.
In my view and I'd say, it's shared by my leadership team.
We believe is sufficient to drive our growth initiatives. So.
You kind of get to a point Reg where you know this is this is a level that we can fuel and fund our R&D work our pipeline and we can do our product development work, we can run our plants safely.
And continue to invest in them.
So it's more a matter I'd say Bobby of building into we're growing into our platform.
And getting ourselves to scale, rather than being in a position where we could have substantially increased our opex to drive our growth. It was very fortunate when I came here that that level of.
Infrastructure and the financial support for that infrastructure was already here. So basically what we're doing now is running the ship as it is we're growing into our footprint and growing into our size and our Opex you know as we see it moving forward is basically running at the current rate we're at now.
Plus inflation for the base business.
Not I would say I would put aside any strategic acquisitions or investments outside of that but for the base business, where we're feel that we're in good shape right now.
Perfect. Thanks.
Thank you Bobby.
And our next question coming from the line up Dmitry, So person with water towers research. Your line is open.
Hi, good.
Good afternoon Hello. Thank you for taking my question. Good afternoon, congratulations on a strong finish to the year and the deal with <unk>.
Quick question.
You.
Sounded pretty optimistic on your revenue expectations for the first half of 'twenty two.
But not far off but I think I also heard that there may have been a little bit.
More active customer buying in the fourth quarter the benefit at the end of 'twenty. One ahead of expected price increases. So I guess my question is.
What is it that gives you the confidence of which areas do you expect the call to materialize.
To give you the faster growth than you had last year. Despite the fact that you may have had a little bit of pre buying taking place in the fourth quarter Mhm mhm. Thank you dmitry.
Uh huh.
I'm Lucky to have unfortunate to have matti and come out with me. So I will pass it over to them in a few seconds for their commentary but.
When we think about the business in agriculture.
Full year cycle, so the fourth quarter, the first quarter fourth quarter of the year, our customers make buying decision depending on how they foresee price increases how they see supply how they see the forecast we're sort of at their spring season breaking.
So between the fourth quarter of a year the first quarter in the second quarter, It's all one big.
Cycle from our standpoint.
So as I mentioned, we did see strong demand from our customers in the fourth quarter wanting to make sure that they secured supply and wanted to get product positioned ahead of anticipated price increases for this year.
As we look into 2022 you know we have a good number of tailwind with US we've got strong commodity prices.
We've got robust demand for all crop inputs.
From our side, we're seeing strong demand for our chip side platform, our nomad decides and certainly for our seed treatments.
And we're very fortunate again that.
We are quite diversified and moving away from being.
So heavily dependent on the U S market.
We've got an excellent business in Europe , and international under underneath Maddie and then come all you know as we look into our North American business, we have a broad footprint and certainly a bigger in expanding seed treatment portfolio. So you know with all of those things coming together, we think that we're very well.
<unk> to take advantage of the market.
Going into 2022.
With that Ah Maddie I'll pass it over to you and then come all after that for any additional comments you'd like to make.
Yeah, Thanks, Kevin and Hi, Dimitri. Thank you product. Good question. So I think Kevin said most of it and I Echo everything what what Kevin just mentioned there is.
You know one.
Highlight I would like to make is the contracts that we've signed recently as an example, with Chordoma, which which again shows that we're expanding our existing business with our current partners courts that while of course being.
A major partner for us, but also us having a significant relationship in South America with companies such as Brazil factor.
And some others that means that we're doing the right things and having a diversified portfolio I think what we're seeing especially internationally right now is that our our plant health Division is first of all it's going to be.
And season in seed treatment is starting to kick in in the first half of 'twenty, two and that's really showing that we're doing the right things and expanding that business with our existing partners why we're forging new ones. So it's.
It is a combination of having an extremely well diversified and balanced portfolio, but also doing the right thing with our partners in order to.
<unk> business.
And with that I'll.
Passover to commodities commodity you have commentary on the on the U S business.
Thank you Bobby and thanks again for the question Dmitry. So just wanted to add one more I spoke to Matt.
It's really about the.
Our initiatives by your unite which is about both combined the biologicals with traditional chemistry I think we've had very good success with it and I think in the first half of the year, we'll see encore Boston, while more outweighed by unites our strategy I want to say that we are continuing to focus on row crops. So definitely.
Some of our plant health.
<unk> solutions that we that we launched recently like base turnaround you beat the 110 will get a lot more traction and without of course, we expect a strong first half of the year on the other aspects probably that's all that <unk> also talked about E. C treatment, where we are focusing a lot on the seed treatment and expanding reading type here in that.
They need west.
Got it okay. Thank you very much that that was very helpful.
Thank you Dmitry.
And also Brian Lazar and gentlemen, you'll have to ask a question. Please press Star then the one key on you touched on the telephone.
And I'm showing no further questions at this time I'll turn back to Mr. Kevin <unk> for any closing remarks.
Yes. Thank you.
I would just quickly close by noting we have not entered into the merger agreement with bio series lately.
We spend a great deal of time and resources to ensure we are achieving a positive outcome for our shareholders, maintaining an industry, leading commercial operation for our customers and building a promising future for our people.
We intend to be a valuable partner and the long term success, but what will be a breakthrough position in sustainable agriculture around the world.
Thank you again, and we look forward to speaking to you later speaking with you later this year. Thanks al.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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