Q1 2022 Marrone Bio Innovations Inc Earnings Call
Ladies and gentlemen, please remain on your line you have switched quarter 2022 earnings conference call will begin momentarily.
Thank you for your patience.
[music].
Good afternoon, ladies and gentlemen, and welcome to the first quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your touch.
John telephone.
As a reminder, this conference call is being recorded I would now like to hand, the conference over to your host Ms. Linda Moore.
Yes.
Good afternoon, everyone.
Thank you for joining our call.
Welcome to the 2022 first quarter earnings conference call for Malone bio innovations.
Our presenters today are CEO , Kevin he lash and interim CFO Don Johnson.
And they are joined by market Shannon Senior Vice President for International sales and small <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.
We'd like to remind you that this conference call may contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95 regarding managements future expectations plans projections forecast.
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 and DNA 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 the question.
I will now turn the call over to our CEO , Kevin <unk> Lash Kevin.
Okay.
Thank you Linda.
Thanks to everyone joining us today.
I would be remiss, if I did not start by expressing our sympathies to all those impacted by the conflict in Ukraine.
Many of us in the MDI family have personal ties to the country.
Perhaps and prayers are with them and we hope for a quick end to this humanitarian crisis.
I'm proud to say reports indicate that even under the worst of all circumstances farmers in Ukraine being able to plant over 30% of their spring crops. According to the country's green traders Union.
To illustrate the tenacity. This has taken a recent Reuters report report spoke of growers wearing body armor as they go to work in the fields.
While we anticipate some effect on our full year revenues in Europe due to the Ukraine conflict, we will work diligently to make up the difference in other parts of the business.
Turning specifically to the first quarter I'd like to speak broadly to the macro conditions, we faced and provide additional color on our outlook for the second quarter and first half of 2022.
Dan will then go into more details on the numbers.
To start please turn to slide three.
Our first quarter results with solid revenues in our row crop markets and difficult weather conditions for specialty crop growers in the Western U S. Underscore the importance of our strategy to diversify our product mix and our geographic reach and why our merger agreement with balanced series is key to the expansion of our business across each segment.
<unk>.
We were very pleased with our north American seed treatment business, which expanded in the first quarter. Thanks to the strong demand for our borrowing sector side by our <unk> product.
As you know in the fourth quarter of last year, our North American customers stocked up in anticipation of a normal season.
For our partners, serving our row crop markets, we saw an increase in sales in the fourth quarter. As these products began to move through the channel and be placed on farm.
The dynamic was different for specialty crops.
In the second year in a row in the western United States severe drought conditions curtail early season use of our fungicides.
This is not an issue of performance our products continue to have strong support from the market.
Challenge is that the dry conditions negate the overall demand for fungicides, which in turn lowers the need for customers to restock.
Just to give you a feel for the severity of the circumstances growers faced the use.
CA reported that March precipitation in California was less than half an inch versus more than two inches in an average year.
Additionally, northern California, and the Pacific Northwest incurred cross damage in the fruit and nut trees, the impact of the Prost and its effect on orders going forward is still being determined.
On a positive note as we indicated in our fourth quarter call. We continue to foresee a sharp rebound in revenues in the second quarter, putting us on track for low to mid teens growth for the first half of the year, which would represent a material increase over our revenue growth in the first half of 2021.
Our forecast is supported by a healthy order book with strong demand from some of our most significant repeat customers.
A key component of our growth in the first half will be sales of full year and seed treatments for major row crops in the United States Europe , and Latin America.
In the U S. R. C treatments are primarily used on soybeans and the latest USDA planting intentions report indicates the potential for a record 91 million acres of soybeans up 4% from acres planted in 2021.
This bodes well for the use of our products and sales going into the 2023 season.
To a certain degree the anticipated increase in U S. Soybean plantings as a function of the drop in Brazil, Argentina, and Paraguay, which is expected to reduce yields.
Despite those conditions the outlook for our business in Latin America is very healthy going into the 2022 growing season.
As we discussed previously we have made decisions regarding our manufacturing facility and our commercial activity in Russia, which are fully aligned with the broader international community in condemning the current actions by Russia and Ukraine.
Our procurement team has built a healthy level of inventory within Europe , where its line of seed treatments and foliar products.
By the end of this month, we expect to have enough seed treatment materials in Europe to supply our customers for the 2023 and 2020 for planting seasons.
Regarding our full year products, we plan to have enough inventory by the end of May to cover at least one year of expected demand.
We are also moving quickly with our plans to geographically expand the production capabilities of our pro forma portfolio.
We believe that our current scope of options for manufacturing locations combined with robust inventory will carry us through any supply chain constraints that are related to Russia going forward.
The diversification of our production outside of Russia as the strategy, we have been working on due to commercial reasons for some time.
But that timeline has been dramatically accelerated in today's environment.
All told while we start to the year was challenging in the Western U S. The outlook for the first half and remainder of 'twenty to 2022 remains promising.
The continued diversification of our portfolio from a product and geographic perspective remains critical to our long term success.
Of course, our proposed merger with <unk> series will play a key role in meeting that objective.
The necessary steps towards completing the merger are well underway and as previously reported we expect to close the transaction in the third quarter of 2022.
I'd like to turn the call over to <unk> now to go into the financials beyond revenues in more detail and then I'll sum up what I believe are key performance indicators are for the remainder of 2022.
<unk>.
Thank you Kevin if you would refer to slide four I'd like to expand upon beyond the revenue numbers. Kevin already has discussed gross profit in the first quarter was $6 2 million as compared with $7 million in the first quarter of last year.
Several factors were at play most notably shifts in product mix. We also experienced higher raw materials costs, which may continue through the year. Additionally, we have expanded production at our Michigan manufacturing plant.
This capital expenditure, which was mostly implemented in fiscal year, 2021 will enhance efficiency and margins longer term. However, it also creating some short term variances.
Gross margins were 55, 9% also lower than in the first quarter of 2021.
In line with our annual target to maintain gross margins in the upper 50% range.
Said this was our 14th consecutive quarter with gross margins above 50%.
The increased losses for net income and adjusted EBITDA both reflected.
They are both reflected in the lower gross profit.
Our bottom line results also were affected by the increase in operating expenses, which included a significant significant level of nonrecurring expenses from legal and other consulting fees associated with our merger agreement with <unk> series.
Through the fourth quarter of 2021, and the first quarter of 2022, we've incurred 2 million to $3 million in such costs and these types of non recurring charges will continue until the deal is closed.
Given how MBIA defines adjusted EBITDA I would remind you that you will not see the full effect of M&A related charges in our adjusted EBITDA table until the transaction is complete.
We also incurred higher R&D costs to support the registrations and regulatory packages for some of the key products in our pipeline.
These were planned expenses and key to accelerating our growth.
Looking forward our budget anticipates that 2022 operating expenses exclusive of the non reoccurring charges will remain flat with Opex in 2021 plus inflation.
Finally, cash and operations increased to $8 4 million.
We have been building inventory in anticipation of increased revenues going forward and as we relocated the pro farm's seed and foliar treatments into Europe .
Crude liabilities are significantly higher and cash will be affected as we pay down expenses associated with the merger agreement.
Overall as we look through the first half we believe we are on track to meet our goal of low to mid teens revenue growth, while holding ongoing operating expenses in line let.
Let me turn the call back to Kevin.
Thanks.
Thank you well done.
If you would turn to slide five I'd like to point you to the key metrics that will define our success in 2022.
As I alluded earlier, our commercial focus remains on continued diversification of our portfolio across crops and across regions. We're in.
<unk>, our first large sale of amplitude S T. Our new broad spectrum by a fungicide seed treatment product later this year.
This will mark a significant inroad into the corn market for MBIA through our partner <unk>.
We anticipate <unk> could be used on more than 5 million acres of corn in the United States in the 2023 planting season.
Our recent announcements of expanded agreements with a major global partners like for Teva are a key driver of our future success our.
Our European seed treatment business is expected to nearly double in the first half of the year.
This growth will be fueled by in part with the launch of <unk> and increased demand for our <unk> seed treatment.
Likewise to growing relationship with reasonable factor will continue to be the cornerstone of our expansion in the Latin American market.
Additionally, our international full year crop protection sales are expected to grow by more than 40% for the full year driven by a demand generating activities in the field additional boots on the ground and solid channel partnerships in Brazil, Chile, Mexico and Central America.
We are anticipating significant revenue synergies through a culmination with bio series and both companies are bringing important new products into the market in the next few years.
As you likely know bio series recently received clearance for the import of its HP for drought tolerant soybeans into China.
A major milestone in opening the door for the planting of these seats in the top soybean growing regions of the world.
The combination of our soybeans treatments and bio series HP for drought tolerant Jean will be an exciting offering to take to our channel partners and growers in the future.
From a manufacturing perspective, the capital investment in our Michigan facility has allowed us to ramp up production to meet anticipated demand in 2022 and beyond.
We've been able to service our customers without disruption during work continues to be a trying period for supply chains across all industries not just agriculture.
Our R&D pipeline continues to progress and we are focused on advancing our regulatory packages for our novel Bio insecticide bio no matter of side products, <unk> 369 states and <unk> in Brazil.
Pending regulatory approvals our current forecast is that we may launch both of these in the second half of 2023.
Our bio herbicide platform as a key research program and a significant part of the value proposition, we bring to our merger with final series.
All of our candidates are progressing in line with our expectations. We anticipate we could have a commercial launch of our <unk> herbicide in two.
2025, with additional products coming to the market in the next several years thereafter.
Recent decisions by the U S. EPA regarding herbicide safety underscore the importance of bringing growers new week control options to support their operations.
Of course, completing the bio series transaction is top of the list for 2022.
By a serious followed the initial F. Four registration statement. This week, which contains a preliminary proxy statement prospectus and provides further detail on the proposed transaction.
To summarize our outlook for the year, we anticipate first half revenues will increase in the low to mid teens percent based on growth and historically larger second quarter.
We expect to maintain annual margins in the upper 50% range and ongoing expenses are budgeted to remain flat plus inflation.
All of this should create a strong platform for the next wave of growth that we've received through our combination with <unk> series and our ability to further leverage our unique portfolio worldwide.
I'd like to turn the call over to the operator now for your questions.
Ladies and gentlemen, if you have a question at this time please.
<unk> on your Touchtone telephone if your question has been answered or you wish to remove J telephones. Thank you.
That's helpful.
One is on <unk>.
The Q&A roster.
Yes.
No.
Once again, if you would like to ask a question. Please press star one.
We have Jim Mitchell Days' time from water Tower Research. Your line is now open.
Thank you for taking my call I, just like to follow up quickly on a statement that you made.
Regarding Latin American business expectations for the second quarter, you talked about the drought conditions in the region, but you are talking about depending on still strong Latin American business. So can you provide a little bit more granularity on what's driving your.
Conviction in the strength for both of which markets are offsetting.
The drought impacted regions and crops.
Yes. Thank you Dmitry for your question.
I'm going to have <unk> with me that our SVP of international sales and I'll hand that over.
To give.
Give you some more color there thanks.
Thanks, Kevin and thanks to make a further question.
Youre right.
The South American Brown and also the fertilizer prices are of course.
Putting the farmers in the situation, where theyre thinking what to do and how to manage their crops, but our products that we're now rolling out and what we launched last year in the market are really key to the farmers positioned because we have our full year.
Finally, our fertilizers are especially out of the fertilizers rolling up to the market and these are specifically for managing a periodic price.
These products also have a big impact on midstream.
Use efficiency and nutrient uptake of NUPLAZID, but they basically serve both of the the.
<unk> one is the <unk>.
The plants are facing and then also helping out with the nutrient use efficiency.
So that is why we expect a stronger demand than we've already seen that in the marketplace.
Okay. That's helpful. Thank you.
I just want to make sure that on our fourth quarter earnings call you talked about double digit.
Or low double digit growth first half revenue with year over year.
Now you're talking about low to mid teens growth.
First of all if I correct, whether there's any sort.
On acceleration in Europe , and your growth expectation in <unk>.
Kindly.
Is that the customers replenishing their inventories in the U S. As it is.
Is it new products or product going into new markets and regions.
What changed.
Youre not seeing faster growth in the second quarter versus your original expectations.
Yes, Dmitry, it's Kevin here.
So.
As you can imagine we're constantly looking at our business and assessing the needs of our customers looking at.
Market demand in all factors influencing the current crop year.
What I am going to do is hand, it over to <unk>, our head of global marketing.
About how we're seeing the second quarter and the first half over overall.
Yes, Thank you Kevin and thank you Dmitry, so basically as we move into the second quarter, we'll see a lot more demand for insecticide and herbicide products need shortly we have been very strong on those on those offers and as we move on into the season of course, a lot more territory will open up here in the U S. So basically will be.
Talking about the Midwest will be talking about the current lineup will be talking about the northeast where our products are really well.
Accepted so that gives us a strong indication about how much growth. We can have basically they have a lot of discussions of course with our channel partners and we also when they are for very closely.
Our cells directly to Huawei, so basically the pull through that our distributors at doing that so far we've seen.
Single digit growth in terms of those cells to the growers. So that gives us a lot of indication here in the U S.
In California in particular, and as we open up in other territories as well, we should see that growth to be in materialize in the second quarter.
Okay. That's helpful. Thank you and then final question if I may.
You talked about North America, and Latin America.
Anything going on in Europe with type.
The war in Ukraine that is affecting your product sales there either in the positive or negative way and what are the conditions. There like in terms of farmers' ability to pay up for these inputs together the increase in.
And pricing that everybody is seeing.
Hi, Dmitry, it's Kevin.
Of course, there is a lot of news in Europe , right now both positive and challenging let's say.
We do have a lot of good things going on in our business driven by our pro farm team.
Matti.
I'll hand, it over to you that to expand on that thanks.
Thanks, Tim if youre again for the questions. So I think in Europe , we're seeing of course R. R.
Our scope both for the UK and supporting all of our colleagues and partners there too.
Overcome the situation.
And Europe , otherwise we see.
It's a difficult situation for the farmers at the same time.
Grain prices are are almost record high depending on the crop.
And our farmers are thinking what's at play that one.
I think there are advantages in <unk>.
Europe and.
In other places as well as debt.
One of our businesses on the seat so exceeded the one that gets less and less affected by the turbulence in the markets partners need to see them, they know which genetics they rely on.
The other thing is that we also rolled out in Europe , we signed a contract for our <unk> product, our foliar speciality fertilizer with daiwa.
Europe and this is also stress management tool a nutrient use efficiency. So I think that again, we are addressing with our foliar fertilizer and final southwind, we're addressing the problems that the farmers are having and at the same time on the seed side. We're also addressing similar problems, but we are tied to the seat which is less affected.
So the actual turbulence. So so I would say that that is.
It's a positive scenario and we're seeing an uptake in Europe and the business is increasing.
So there is there is good in it but of course the situation in Ukraine.
Something that we.
As everybody else are very shortly.
I understand okay. Thank you very much.
Thank you Dmitry.
Once again, if you wish to ask a question. Please press star one.
Okay, operator, I think that concludes our Q&A session.
So everybody on the call. Thank you again for your time. We appreciate your continued interest in Morrow bio as we transitioned to become part of a larger global operation with the type of diversification and expanded.
Product offerings that will drive our growth and profitability. We believe our first half demonstrates the value. We likewise spring to mind series with the World class, our president of unique sustainable solutions for the ever evolving needs of growers. Thank you again, and we look forward to speaking with you in the coming months.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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