Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Marrone Bio Innovations' Third Quarter 2013 Financial Results 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. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. David Niederman. Sir, you may begin.

Good afternoon. Thank you for joining us on today's conference call to discuss Marrone Bio Innovations' fiscal third quarter 2013 results. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of Marrone Bio Innovations website in investors.marronebioinnovations.com. With me on today's call are Pam Marrone, Marrone Bio Innovations' Chief Executive Officer; Don Glidewell, Chief Financial Officer; and Hector Absi, Senior Vice President, Commercial Operations. After the market closed today, MBI issued a press release announcing the results for fiscal third quarter ended September 30, 2013. If you would like a copy of the release, you can access it online at the company's website or you can call The Blueshirt Group at 415-217-7722 and we will fax or email you a copy. Before beginning, I would like to remind you that this conference call may contain statements regarding management's expectations, hopes, believes, intentions or strategies regarding the future as well as projections, forecasts or other characterizations of future events or circumstances. Such statements are based on management's current expectation and belief concerning future developments and a potential effect on the company. There can be no assurance that future developments affecting the company will be those that management has anticipated. Such statements involve a number of risks and uncertainties, some of which are beyond management's control or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these statements. Important factors that could cause differences are contained in the reports filed by the company with the Securities and Exchange Commission, including the Form 10-Q that the company filed on September 13, 2013 and our earnings release posted on the company's website. Should one or more of these risks or uncertainties materialize or any of the management's assumptions prove incorrect, actual results may vary in material respects from those discussed today. Any guidance that management may offer in this conference call represents a point in time estimate. The company expressly disclaims any obligation to revise or update any guidance or other forward-looking statement to reflect events or circumstances that may arise after the date of this call. Now I'd like to introduce Pam Marrone, Chief Executive Officer of Marrone Bio Innovations.

Thank you, David. I would like to welcome everyone participating on today's call. We had a good third quarter. In addition to closing our IPO and becoming a public company, we made excellent progress on several fronts, including further penetration of our products into row crops, broadening our distributor relationships, progress on the Michigan plant and also continued validation of our product pipeline through field trials. The momentum for bio-based solutions continues to grow and we see this validated in our conversations with our grower-customers and with our current and potential distribution partners. Growth of biopesticide and interest in the segment by growers, distributors and large agricultural chemical companies continues at a rapid pace. Regarding distribution channels, during the quarter, we signed MOUs with two new distributors for the European region for our Grandevo and Venerate products and our working at formalizing the agreements. In France the MOU is with DeSangosse, the largest independent distributor in France. In Italy our MOU is with CBC/Intrachem, one of the leading biological providers in Europe. These are best-in-class distributors and they would greatly extend our reach as we look to bring our products and solutions to growers in Europe. We are extremely excited about these potential new partners who have pioneered selling biologicals for use in agriculture. Finally, our partner Syngenta has announced that they will be launching Regalia Maxx in Turkey this month. Turkey is a large provider of fruits and vegetables to the European Union and Asian market. Now, I'm excited to share with you data from our launch of Regalia Rx on corn and soybeans in the Midwest. These commercial applications showed very encouraging results with respect to yield increases and plant health. Regalia Rx was applied on top of the chemical treatments and resulted in 5 bushels per acre…

Thanks, Pam. As we discussed during the road show, the M3 project was planned as a $32 million project in three phases. Now because of the rapid adoption of Grandevo in 2013 which has exceeded our forecast, we have decided to accelerate our investment in M3. With this we expect to achieve greater flexibility, higher volumes and a greater control to satisfy the demand of our products. The original Phase 1 included one working 20-cubic meter fermenter. The new plan now includes the installation of three independently working 20-cubic meter tanks. This new plan should give us the ability to produce multiple products simultaneously and to more than triple the capacity that we expect from the original Phase 1. We will be referring to the new plan as Phase 1a, Phase 1b and Phase 1c. Phase 1a is planned to be completed by yearend which means that we still expect to produce our first batch of Grandevo before the end of the year. Our total expenditure through 2013 is expected at $10.5 million which also includes moving a portion of Regalia production to M3. We expect to have phases 1b and 1c completed by July of 2014 at a total cumulative cost of $50 million. This acceleration is not expected to increase the total planned capital expenditure of $32 million for the entire build-out of the M3 facility. Phase 2 and Phase 3 include increasing utilities and installing larger fermenters at M3 and we will be sharing more on our progress in future earning calls. Now, I'll turn it back to Pam.

Thanks, Hector. I would like to address the announcement we made earlier that Don Glidewell will be retiring from the company. I want to thank Don for his tremendous contribution to the company. Don has been an integral part of Marrone Bio Innovations for two and a half years and was a key element in our recent initial public offering. We are grateful for everything he has done and we wish him well in his next endeavor. Don will continue in his role as CFO as we search for a successor. With that, I will turn the call over to Don to discuss our financial results.

Thanks, Pam. I also want to extend thanks to everyone at MBI and also our investors. I'm proud of what has been accomplished and of my role in putting the company on a financially stable footing. I remain excited about the future of the company and I am committed to ensuring a smooth transition to a new CFO and will work closely with Pam and the other team during this period. Turning to the quarterly results, we recognized $1.3 million of revenue and have deferred 770,000 of additional sales to future periods. This 770,000 is reflected as deferred revenue on our balance sheet. 1.3 million in revenue for the third quarter of 2013 compares to 740,000 for the same period in 2012 or an 82% increase for the quarter on a year-over-year basis. For the first nine months of 2013, total revenues of 8.6 million which excludes the deferred revenue piece compares to $4.2 million for the same nine-month period in 2012 and represents a year-over-year growth of 102%. As mentioned in our last earnings call, third quarter has historically been our lowest quarter of our fiscal year as a result of seasonal trends. I would like to discuss the deferred revenue piece I mentioned previously. $770,000 worth of product was delivered, accepted and invoiced to our customers during the quarter in addition to the 1.3 million that was recognized. In the ag industry, extended payment terms are a common place, particularly in row crops and for large high volume orders. We are entering row crops as a new segment of our business and will be offering extended payment terms compared to what we have offered in the past. We're deferring revenue on these invoices and will recognize this revenue in future periods. There's three considerations to offering these extended…

Thank you. (Operator Instructions). Our first question comes from Laurence Alexander of Jefferies. Please go ahead.

Good afternoon. How are you doing?

Great, thanks.

I guess just a couple of things. First, obviously sort of very early in your growth cycle, but as you look at last year, your Q4 was about four times your Q3. Can you give a little bit of – a sketch of how you see the cater into Q4 this year and how the [indiscernible] might be shaping up?

Certainly, Laurence. This is Hector. We are on track to deliver more than double the amount of business we delivered in 2012. As such, the ratio we experienced in 2012 will be mirrored in 2013 to be able to live against those numbers and again, that would include any deferred sales that we will obviously accrue as well.

Okay. And then with the expansion of the pipeline to six products that are in biotech, can you give some detail as to which ones you've moved forward? And also how that will affect your R&D run rate next year?

Sure. So the original plan was to do toxicology on a nematicide, a fungicide and our herbicide and we've added into the tox a microbe that reduces stress in plants and another nematicide at a biofumigant. And so what we did was accelerate some toxicology expenses line for '14 into '13. And the R&D expenses are relatively flat on the remainder of direct R&D expenses outside of the people costs.

Okay. And then one last one then I'll hop back in queue is in terms of the salary inflation you're seeing, can you give us a rough sense for both what's happened so far and also what do you think a reasonable CAGR might be for the next several years not if that expectation is too high internally?

I have a two-pronged question. I'd like to remind you that a piece of this on the compensation inflation is the stock-based compensation which we have not accounted for in our initial projections as it was non-cash and difficult. So we are reporting on a GAAP basis. So there's $537,000 worth of stock-based compensation included in this quarter. There's accruals for increasing incentive compensation besides to stock based which is just a higher accrual rate which we took on this time, I think it's important to incentivize the folks. And there is other employee related was around 500 for the quarter.

It was kind of a CAGR, so there's intense competition for challenge in this space, okay? One of the things that I've always said that keeps me up at night is track and retaining the talent and because we have an advantage here that we train these people because we have a higher knowledge of how to do biopesticide, it's really important that we retain. So it's only natural as more companies enter this space that there's going to be more competition for this talent and people try to pickoff our employees. So we have had to increase our competitive response to that. We did a significant increase this year. I don't see that level of increases going forward year-over-year.

Okay. Thank you.

Okay.

Our next question comes from Mike Cox of Piper Jaffray. Please go ahead.

Hi. This is Amanda Durow representing Mike Cox. Congratulations everyone on the fantastic quarter. The question we have is what does your order of backlog look into first half of 2014? Are the growers who tried the Regalia Rx on corn making orders to apply for higher acres?

This is Hector again. The answer to your question is yes. We see the demand and backlog in our system consistent to be able to deliver against the expectations we've set forth. And again, the good news that Pam shared specifically in the row crop area in the Midwest is actually very consistent and setting our business up to deliver against the numbers we expected into 2014.

Okay, great. And then my second question is today at Monsanto's Analyst Day, they expanded their biological program and this follows FMC's expanded effort. Can you speak to the importance of the first move or advantage you have in the categories since those products are likely not going to be out for another five years?

Absolutely. We do have a significant head start. I said five years, I give it even longer than five years, I think we have a seven-plus year head start in that regard. So we continue to have the broadest fastest moving and more market entries than anybody else with a unique capability to characterize the compounds and patent the compounds produced by the microbes giving us a higher performing product than others.

Perfect. Thank you so much.

Our next question comes from Philip Shen of ROTH Capital. Please go ahead.

Good afternoon, guys. This is Matt on for Phil. Thanks for taking our questions. Just wanted to start out with some commentary from one of your chemical focused competitors just recently talked about a lack of innovation herbicides, in particular they also highlighted that customers are willing to pay a premium for more innovative products. Are you seeing this as well and is this something that sort of opens up an attractive opportunity for Opportune for you guys? What are your thoughts here?

That's a great question. We noticed the lack of new active ingredients for herbicides. The company was founded on that lack and so we are one of – probably the only company in the industry, biopesticide company that really has a major focus on bioherbicides. And so we are innovating to that and have a number of products coming, our most exciting 010 our systemic herbicide which is moving along. And then Opportune has a lot of potential opportunities more in the high value segments [indiscernible] home and garden and turfs, professional turf. And then as we get the fermentation cost down and yield up, then it can expand into what we see mixtures for our herbicides in other markets.

Okay. Thank you. That's helpful. And then one more here. Just counting the 770,000 in the revenue line, it looks like this would have represented about 40% of revenues in total. Going forward is there a rule of thumb that we can use for the mix of deferred revenue? And how will seasonality come into play in this situation?

Sure. We don't intend to offer extended terms across the board, so the continued business in specialty crops will – unless there's a volume driver or something will continue to be, will be in the 90-day term which we currently recognize. I also want to point out that this deferral of revenue with extended terms is a temporary, if you will, phenomena until we build the history of – from a GAAP perspective we need to build the history to show that these are sales that are made and collected on time and on due date. So I think we'll see this go away in the coming year or two. It should be in the coming year just depending on our history there. So as a percentage, I think in the row crop business we'll step to high percentage. That's the way competitive business is done. And so to the extent our business is in the row crops and in the high volume areas, you'll see these extended terms. We'll defer some of that revenue and I think Hector has a better handle on the ratios and I don't think we're really commenting on giving much guidance on these segments.

What's important to note is that we are doing everything we can to ensure that we're competitive in the marketplace, that we provide both our grower and retail partners the best opportunity to be able to experience and value our technologies and use our technologies. This again is a temporary GAAP situation that it is difficult for us to forecast when this will actually change, but definitely not going to change our strategy to continue to provide competitive solutions to our growers and customers.

All right, that's helpful. That's it from us. Thank you.

Our next question comes from Paul Massoud of Stifel. Please go ahead.

Hi. Thanks for taking my question and I apologize for any background noise you might hear. I guess first off my first question is just on the implications for cost as you start to move more products to Michigan. I imagine over time the cost come down, especially with Regalia going in [indiscernible] Regalia production coming from Michigan [indiscernible] curious if you expect a step up in cost as you work out kinks?

No. As a matter of fact the objective of modifying our Phase 1 strategy is to try and bring the cost issue more in our hands than in the hands of contract manufacturers. We certainly expect consistence in terms to what we've shown you that there will be increased margins year-to-year from 2013 into '14 specifically as we start getting margins in Grandevo and our expectation as we continue to rely now on our own people for the manufacturing is that we'll have greater flexibility to continue to obviously assess and implement future product development or fermentation efficiencies that our R&D group brings to us on a timely fashion.

Okay. That's helpful. My second question is just again going back to the issue of salary inflation and what specifically – I guess what I'm curious about especially in the context of consider talking about the biological segment starting to get more attention. I'm curious, when you talk the need to retain talent, are you seeing multiple potential coachers of talent or is there one in particular, I'm just kind of curious what's it starting to look like?

Our employees have been recruited by all other companies looking to bring depth [ph] into the industry, so it's across the board.

I'm sorry, could you say that again? I didn't hear…

I said it's across the board. There is no one company.

And no one employee…

It's equal opportunity situation and across all levels in the organization, okay.

Okay. Thanks.

Our next question comes from Laurence Alexander of Jefferies.

Hi. Just had a couple of follow-ups. First, in these studies where you compare against a nematicide, is that against another biological product or was that against a chemical product?

It was against a vector which – you know what that is, okay.

Okay. And secondly you had just – I know you don't want to get into too much detail on your crop by crop exposures, but can you give me what's like a rough, say, range like the top two or two three crops like what's driving your sales this year and then how you think that might change next year?

Certainly.

I guess what I'm really trying to key out is at what point of the row crop penetration become a significant driver for you?

You bet. So Laurence, the top crops that delivered revenue or will deliver revenue for us in 2013 will be a combination of both horticultural crops and row crops. I'll be more specific; citrus – obviously corn and soybeans on the row crop and grapes. We have had significant result, as Pam indicated, with some of our trials with Grandevo and Venerate in several horticultural crops, so we continue to expect growth in that area. We expect in general to see the same three crops as the leading crops in 2014 as well.

And then as you look at the competitive brands here, I guess take it from a different angle, I think in the past, Pam, you've characterized the difference in your philosophy or one way to think about it in terms of focusing more on delivering chemistry by the microbes rather than just trying to deliver to microbes. And could you maybe just sort of flush out a little bit if that's right for how you see that showing us in terms of differences and the types of products that you'll be bringing to market?

Yes, you've got that right, Laurence, that a key competitive advantage is that we focus on the chemistry produced by the microbes as well as the microbe and most others focus on just the microbe. So that is a very fundamental difference, a key competitive advantage for us because when you characterize the compound, you can optimize those compounds and fermentation and deliver a consistent level of performance and we all patent those compounds, we get much better patent protection than if you were just delivering a microbe. Somebody can deliver a microbe on a seed, someone else can come up with another microbe that does a similar thing, but we have one like our three nematicides that are producing chemistry. We characterize and patent those compounds and then deliver those compounds plus the microbe, it gives us a more consistent higher performing, better patent protected product.

And then I guess just a follow-on on that, do you think about sort of the threshold for launching a product in this market? Is it around the 3%, 4% yield gain or something comparable or is a value creation or is it a higher hurdle than that, given the number of people who are now targeting research in this area, I mean how are you thinking about that?

Yes, in terms of yield gain of the crops…

Right. So what sort of marker it makes it worst in this case in other products in your portfolio?

Yes. Again, this is Hector, Laurence. As it relates to the horticultural crops, we're not necessary in as it relates for example with Regalia in the use of this fungal and bacterial control. We're looking to perform as good or equal to our competitive conventional products. So we're not necessarily claiming any additional yield or any additional benefit other than equal control. The benefit here is if we use our technologies, you'll be able to manage revenues better, you'll be able to manage resistance better. The same goes for insecticides in this area. As it relates to the Midwest, when we are looking to – we don't necessarily specifically look at a specific number on yield but instead return the investments to the grower. So we say, again, you've heard me say several times invest 5 and get 20 back in return in the form of 2 bushels of soybeans or 4, 5 bushels of corn. As Pam noted in our presentation, we have been able to deliver at least that amount to growers in the Midwest based on the data we've been able to receive and we're very excited about what that value proposition holds in terms of the continued growth in that area.

But I would say though if we're looking at a 3% to 4% increase in yield, it would not be that exciting to our R&D folks or to me.

Okay. And then just lastly on the CFO transition, any sort of rough sense for potential timing or it is just early days?

Yes, this was a fairly recent event and while we do have some candidates nothing on the immediate horizon right now. And we're really happy that Don's agreed to stay through the transition.

Yes, I mean [indiscernible] through March and through the year unless they find somebody sooner, so all of the report and requirements and moving on in my CFO capacity we're still – we'll work through the transition. I don't think there should be a hiccup in any way.

Okay, fair enough. Thanks.

I show no further questions. Actually, we have a follow-up from Paul Massoud of Stifel.

Hi. This will just be very quick. I mean on the benefits of using your products to row crops, one of the things that started to come up recently in a lower price environment is that farmers are now starting to look not just at yield but also the current quality of the corn. I'm just curious if you've seen any benefits or any effects from your products that might actually imply some benefit other than just yield is [ph] to corn? Thanks.

Yes. Paul, this is Hector. The slide sets we've provided that are available, I believe, on the website…

I apologize, I'm…

Yes, they show exactly what you're talking about. So the impact of products on yields even leading insecticides in the marketplace can tend to be fairly erratic, so you're right. The real value and what's getting our growers really excited as Pam also noted in the call is a concept that we call test weight. We have been very consistent showing improvement on test weight and that goes to demonstrate that Regalia is actually having an impact on the plant itself. You will see on the slide sets greener fields, you'll see on the slide sets better standability, you'll see on the slide sets better root mass, bigger plants and inevitably better fills on the ear and ultimately on the kernel. All that translates to this concept of test weight that are growers are very excited about.

That's all I had. Thanks. I apologize. I'd go back and look at the slides.

No more questions?

We actually have a follow-up from Laurence Alexander of Jefferies.

Sorry, just one last quick one on Zequanox, can you give little bit more color on the initial commercial sales you have, how long you've been in discussions with those customers? And also the California approval and sort of what the implications are for that?

Laurence, the commercial – a little more color on the commercial transactions is we have received purchase orders. We have commenced treatments. I'm not sure if you're aware of this or not but these treatments tend to go on for a period of time, so we're not completed with the complete treatment to be able to start reporting against those commercial relationships but we will obviously in future earnings calls. Now we did complete some of the treatment in the lakes in Illinois and in Minnesota where obviously we're in a place to say that the results have been very consistent with our expectations, so we're excited about those.

Since we're not registered yet, we can't get any revenue for the lakes.

For the open waters. And then regarding the registration in California, obviously we've been expecting that. There is a significant opportunity in California. It's not as significant as it is in the Great Lakes area where the infestation originally started. But as you know, these infestations are moving West, so we are very eager to get in front of a lot of customers in this area to get in front of this problem so it doesn't become a significant issue over time for them.

Yes, the big infestation in California is the lower Colorado River and L.A. and San Diego area and certainly they've expressed interest but it's early stages there.

Thank you.

There are no further questions.

Thank you for joining us on the call. Our product launch and trial results in the third quarter were extremely encouraging and we look forward to providing updates in future calls.